UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                    FORM 10-K

 (Mark  One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT  OF  1934  FOR  THE  FISCAL  YEAR  ENDED  DECEMBER  31,  2000.

[  ]     TRANSITION  REPORTING PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE  ACT  OF  1934  FOR  THE  TRANSITION  PERIOD  FROM  ______  TO  ______.

                           COMMISSION FILE NO. 0-21911

                             SYNTROLEUM CORPORATION
             (Exact name of registrant as specified in its charter)

                         DELAWARE                   73-1565725
              (State or other jurisdiction of     (I.R.S. Employer
             incorporation or organization)     Identification No.)
             ------------------------------     -------------------

                         1350 South Boulder, Suite 1100
                           Tulsa, Oklahoma  74119-3295
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code:  (918) 592-7900

        Securities registered pursuant to Section 12(b) of the Act:  None

           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                       and
                         Preferred Share Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports)  and  (2)  has  been  subject  to such filing
requirements  for  the  past  90  days.  YES  X  NO  __
                                              -

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K  is  not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K. __

At  March  1,  2001, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant was approximately $277 million based on
the  closing  price  of  such  stock on such date of $12.438 per share (assuming
solely  for  this  purpose  that  all  of  the registrant's directors, executive
officers  and  10%  stockholders  are  its  affiliates).

At  March  1,  2001, the number of outstanding shares of the registrant's common
stock  was  33,154,001.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  registrant's  definitive proxy statement to be filed with the
Securities  and Exchange Commission within 120 days of December 31, 2000 for its
2001  annual meeting of stockholders are incorporated by reference into Part III
of  this  Form  10-K.

<PAGE>

<TABLE>
<CAPTION>

                                        TABLE OF CONTENTS
                                              Part I

<S>                                                                                           <C>

Item 1. Business                                                                               3
Item 2  Properties                                                                             30
Item 3  Legal Proceedings                                                                      30
Item 4. Submission of Matters to a Vote of Security Holders                                    30
Executive Officers of the Registrant                                                           30

                                             Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters                  32
Item 6. Selected Financial Data                                                                33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations  34
Item 7A.Quantitative and Qualitative Disclosures about Market Risk                             42
Item 8. Financial Statements and Supplementary Data                                            43
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   43

                                            Part III

Item 10.Directors and Executive Officers of the Registrant                                     43
Item 11.Executive Compensation                                                                 43
Item 12.Security Ownership of Certain Beneficial Owners and Management                         43
Item 13.Certain Relationships and Related Party Transactions                                   43

                                           Part IV

Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K                       44
</TABLE>



                           FORWARD-LOOKING STATEMENTS

This  Annual  Report on Form 10-K includes forward-looking statements as well as
historical  facts.  These forward-looking statements include statements relating
to  the Syntroleum Process and related technologies, gas-to-liquids plants based
on  the Syntroleum Process, including the Sweetwater plant, anticipated costs to
design,  construct  and operate these plants, anticipated costs to make products
from  these  plants, the timing of commencement and completion of the design and
construction of these plants, obtaining required financing for these plants, the
economic  construction  and  operation  of  gas-to-liquids plants, the value and
markets  for  plant products, testing, certification, characteristics and use of
plant  products,  the  continued development of the Syntroleum Process (alone or
with partners), anticipated capital expenditures, anticipated revenues, the sale
of  and costs associated with our real estate inventory and any other statements
regarding  future  growth,  cash needs, operations, business plans and financial
results.  When  used  in  this  document,  the  words  "anticipate,"  "believe,"
"estimate,"  "expect,"  "intend," "may," "plan," "project," "should" and similar
expressions  are  intended  to  be  among  the  statements  that  identify
forward-looking  statements. Although we believe that the expectations reflected
in  these  forward-looking  statements are reasonable, these kinds of statements
involve risks and uncertainties. Actual results may not be consistent with these
forward-looking statements. Important factors that could cause actual results to
differ  from these forward-looking statements include the risks that the cost of
designing,  constructing  and  operating  commercial-scale gas-to-liquids plants
will exceed current estimates, the schedule for construction of commercial-scale
gas-to-liquids  plants will extend beyond current estimated schedules, financing
for  design  and  construction of commercial-scale gas-to-liquids plants and our
other  activities  may  not be available, commercial-scale gas-to-liquids plants
will not achieve the same results as those demonstrated on a laboratory or pilot
basis,  gas-to-liquids  plants  may  experience  technological  and  mechanical
problems, improvements to the Syntroleum Process currently under development may
not  be  successful,  markets for gas-to-liquids plant products may not develop,
plant  economics  may  be  adversely impacted by operating conditions, including
energy  prices,  construction  risks  and  risks associated with investments and
operations  in foreign countries, our ability to implement corporate strategies,
competition,  intellectual  property  risks, our ability to obtain financing and
other  risks  described under "Risk Factors" and elsewhere in this Annual Report
on  Form  10-K.

As  used  in this Annual Report on Form 10-K, the terms "we," "our" or "us" mean
Syntroleum  Corporation,  a  Delaware  corporation,  and  its  predecessors  and
subsidiaries,  unless  the  context  indicates  otherwise.

                                        2
<PAGE>
PART I

ITEM 1.  BUSINESS

OVERVIEW

     We are a leading developer, owner and licensor of a proprietary catalytic
process for converting natural gas to synthetic liquid hydrocarbons, generally
known as gas-to-liquids, or GTL, technology. We sell licenses to use our GTL
technology, the Syntroleum Process, for the production of fuels, and we plan to
develop and own GTL plants based on the Syntroleum Process that produce refined
specialty products and fuels. We believe that the costs to produce many products
from natural gas using the Syntroleum Process, including diesel fuel, gasoline
and lubricants, can be competitive with the costs to produce comparable quality
products from crude oil using conventional refining processes. The key
advantages of our technology over traditional GTL technologies are the use of
air in the conversion process (in contrast to the requirement for pure oxygen in
alternative technologies) and the use of our proprietary catalysts, which
enhance the conversion efficiency of the catalytic reaction. We believe these
advantages will reduce the capital and operating costs of GTL plants based on
the Syntroleum Process, while also permitting smaller unit sizes, including
mobile plants that could be placed on skids, barges and ocean-going vessels.
Based on our demonstrated research, we believe that the Syntroleum Process can
be economically applied in GTL plants with throughput levels from as low as
2,000 to over 100,000 barrels per day. The advantages of our technology combined
with the large worldwide resource base of stranded natural gas provide what we
believe is a significant market opportunity for the use of the Syntroleum
Process by our company and our licensees to develop cost-effective GTL plants.

     The Syntroleum Process produces synthetic liquid hydrocarbons, also known
as synthetic crude oil, which can be further processed into higher margin
products through conventional refining processes. These products include:

-     Premium, ultra-clean liquid fuels, such as diesel, kerosene, gasoline,
naphtha and fuel for fuel cells, and

-     Specialty products, such as synthetic lubricants, process oils, high
melting point waxes, liquid normal paraffins, drilling fluids and chemical
feedstocks.

     We have successfully demonstrated many elements and variations of the
Syntroleum Process in pilot plant operations and laboratory tests, including our
joint participation in a 70 barrel per day GTL demonstration plant with one of
our licensees, ARCO. While we have not yet built a commercial-scale GTL plant
based on the Syntroleum Process, we are currently developing a 10,000 barrel per
day specialty product GTL plant based on the Syntroleum Process known as the
Sweetwater plant to be constructed in Western Australia. We are also evaluating
the potential development of additional GTL plants, including facilities that
will produce synthetic liquid fuels.

BUSINESS STRATEGY

      Our objectives are to rapidly establish the Syntroleum Process as an
industry standard and maximize our market share relative to alternative GTL
technologies. Our business strategy to achieve these objectives involves the
following key elements:

     BROADLY LICENSE THE SYNTROLEUM PROCESS. We intend to continue offering
licenses to use the Syntroleum Process for the production of synthetic crude oil
and liquid fuels. To date, we have entered into license agreements with the
following companies or their affiliates: ARCO (a subsidiary of BP), the
Commonwealth of Australia, Enron Corp., Ivanhoe Energy Inc., Kerr-McGee
Corporation, Marathon Oil Company, Repsol-YPF, S.A. and Texaco Inc. (which has
announced a proposed merger with Chevron). We believe that widespread licensing,
combined with research and development activities to further improve the
Syntroleum Process, will provide an advantage over competing technologies,
strengthen our relationships with our existing licensees and attract new
licensees.

     DEVELOP AND OWN GTL PLANTS. We intend to own significant equity interests
in joint ventures with our licensees and other energy industry and financial
partners to develop and own GTL plants for the production of specialty products
and fuels. For example, we are currently developing the 10,000 barrel per day
Sweetwater plant to be constructed in Western Australia, in which we will own a
significant equity interest. We retain the exclusive right to manufacture
specialty products under our license agreements. We believe that our proprietary
reactor designs and catalysts, combined with our improvements to existing
refining methods, will enable us to produce relatively high margin, high quality
specialty products on a more economic basis than conventional refining
techniques.

                                        3
<PAGE>


     FURTHER EXPAND AND DEVELOP PRODUCT MARKETS. We intend to continue to
develop new markets for Syntroleum synthetic fuels and specialty products in
order to promote the construction of plants by our licensees and to establish
markets for the products of GTL plants developed and owned by us. We believe
that our technology can cost-effectively provide environmentally superior
ultra-clean fuels for use in diesel, gasoline and jet engines. We are in the
process of applying for certification that Syntroleum diesel fuels qualify as
alternative fuels under the Energy Policy Act.  We also believe that the
availability of our fuels will enhance the successful development of fuel cells
and other clean combustion technologies.

     FURTHER REDUCE COSTS THROUGH NETWORKED RESEARCH AND DEVELOPMENT ACTIVITIES.
We intend to continue research and development activities with a focus on
improving the efficiency of the Syntroleum Process, further reducing the capital
and operating costs of GTL plants based on the Syntroleum Process, and better
understanding the unique qualities of and markets for the synthetic products
produced by the Syntroleum process. We conduct research and development
activities using our own resources and through our network of joint development
arrangements with licensees and other industry partners. We believe that this
network will provide us and our licensees with an important competitive
advantage and enhance our ability to attract additional licensees and joint
development partners. We generally obtain title or exclusive rights to
inventions or improvements that result from our joint development activities
with others. We regularly review technological advances of others in related
fields and actively seek to acquire rights to technologies that may enhance the
Syntroleum Process.

     To date, we have joint development, testing, marketing or strategic
relationships with the following companies:

<TABLE>
<CAPTION>

<S>                                              <C>


-  AMEC Process and Energy Ltd.                 -  General Motors Corporation
-  ARCO (a subsidiary of BP)                    -  IdaTech (formerly Northwest Power Systems)
-  Argonne National Laboratories                -  Ivanhoe Energy
-  Bateman Engineering Inc.                     -  The Lubrizol Corporation
-  Catalytica Combustion Systems, Inc           -  Lyondell Petrochemical Company
-  Criterion Catalyst Company L.P.              -  Marathon
-  DaimlerChrysler AG                           -  Tessag Industrie-Anlagen GmbH
-  FuelCell Energy                              -  Texaco
-  GE Power Systems                             -  Volkswagen of America
</TABLE>


     COMPLETE DISPOSAL OF OUR REAL ESTATE INVENTORY. We intend to complete the
disposition of our real estate inventory in a manner that maximizes the sale
value. Our real estate inventory was owned by SLH Corporation prior to the
merger of Syntroleum Corporation and SLH Corporation and reflects the remaining
inventory of a real estate development business that was conducted by SLH's
former parent corporation. We have used the proceeds from the sale of our real
estate inventory to fund our operations.

THE SYNTROLEUM ADVANTAGE

     We expect that products of the Syntroleum Process will become a competitive
source of supply for the anticipated demand for ultra-clean synthetic
transportation fuels and specialty products, based on our belief that these
products can be:

-     produced at costs that can be competitive with costs to produce many
comparable quality products from crude oil using conventional refining
processes, including diesel fuel, gasoline and lubricants, assuming crude oil
prices of at least $15 per barrel and natural gas prices lower than $1 per
million British thermal units (price levels that are available for the purchase
of stranded natural gas in many parts of the world),

-     produced substantially free of contaminants normally found in fuels and
specialty products made from crude oil,

-     used as blending stock to upgrade conventional fuels and specialty
products made from crude oil,

                                        4
<PAGE>


-     used unblended in traditional combustion engines to significantly reduce
emissions,

-     used in advanced combustion and fuel-cell engines that require sulfur and
aromatic-free fuels, and

-     transported using the existing infrastructure for crude oil and refined
products.

     The total cost to produce a barrel of fuel includes the amortized plant or
refinery capital costs, the operating costs and feedstock costs (cost of natural
gas in the case of the Syntroleum Process and cost of crude oil in the case of
conventional refineries). Based on our current technology, we expect the
combined capital and operating costs per installed barrel of capacity to be
higher for a GTL plant based on the Syntroleum Process when compared to a
conventional refinery. However, we believe lower prices for natural gas relative
to crude oil can result in a total cost per equivalent barrel of product from a
GTL plant based on the Syntroleum Process that is substantially less than the
equivalent total cost for conventional refineries. Specifically, we believe the
price of stranded natural gas can be generally in the range of approximately
$.25 to $1.25 per thousand cubic feet (approximately $2.50 to $12.50 per
equivalent barrel of synthetic crude) in many markets, as compared to crude oil
prices that have recently been in the range of $18.00 to $30.00 per equivalent
barrel.

     In addition, we believe conventional refineries will face additional
capital and operating costs to meet the recently adopted EPA requirement to
reduce the sulfur content level of diesel fuel to 15 parts per million by 2006.
According to American Petroleum Institute estimates, a requirement to reduce
this sulfur content to 15 parts per million would add approximately $4.20 per
barrel of additional costs for conventional refining. In contrast, the
Syntroleum Process produces diesel fuel that already meets the expected low
sulfur requirement, providing an incremental relative cost advantage compared to
conventional refineries.

     We anticipate that the Syntroleum Process will be an attractive solution
for companies with natural gas reserves that are not economic to produce using
traditional technology based on our belief that the Syntroleum Process can be
low cost, used in large or small formats, adaptable and portable.

     Low Cost. Historically, the most significant obstacle to widespread
commercial use of GTL technology has been capital cost. Because the Syntroleum
Process is less complex than traditional GTL technologies, we believe that GTL
plants based on the Syntroleum Process will have lower capital and operating
costs than comparable-sized GTL plants based on traditional technology.

     Small Formats. Given the large number of fields with small reserve
accumulations containing unmarketable natural gas, GTL plants that are economic
only at high levels of throughput have limited application. We believe that GTL
plants based on the Syntroleum Process can be cost- effective at throughput
levels as low as 2,000 barrels per day. Consequently, the Syntroleum Process
could potentially be used at over 59% of the total gas fields, representing over
95% of the total reserves held in identified natural gas fields worldwide.

     Adaptable. We also believe that GTL plants based on the Syntroleum Process
can be adapted to use lower quality feedstock and can be located in isolated and
remote locations. While many impurities must be removed from natural gas
feedstock prior to processing using traditional GTL technology, some impurities
like nitrogen and carbon dioxide will not need to be completely removed from
natural gas feedstock for GTL plants based on the Syntroleum Process. Due to
their relatively small size and the use of air instead of pure oxygen, we
believe GTL plants based on the Syntroleum Process can be placed on skids,
barges and ocean-going vessels. We believe this reduces capital costs for
land-based plants by allowing for offsite fabrication and use of GTL plants at a
variety of locations, including isolated and offshore areas where we believe a
majority of natural gas fields are located. Moreover, because the Syntroleum
Process is a net energy generator, we believe that these plants can be located
in remote areas without the need for any additional power supply.

     Portable. Because of their high capital costs, gas pipelines and other
traditional methods for commercialization of natural gas resources require
significant reserves and established local markets to be economically feasible.
However, due to the potential portability of smaller-sized GTL plants based on
the Syntroleum Process, we believe that these plants may in some circumstances
be used to convert smaller quantities of in-place reserves than would be
necessary to support a traditional project. We also believe that this
portability, together with the global nature of the markets for liquid
hydrocarbons, will reduce the risk involved in GTL projects as compared to
traditional methods of commercialization.

                                        5
<PAGE>


MARKET POTENTIAL

     We believe that significant market potential exists for the Syntroleum
Process and its products due to the large existing demand for refined fuels and
specialty products, including lubricants and chemical feedstocks, the
anticipated demand for ultra-clean synthetic fuels and fuels for fuel cells, and
the large supply of stranded natural gas worldwide.

Demand for Products

     We expect demand for products created through the Syntroleum Process to be
driven by the following.

     Refined Fuels. The existing market for transportation fuels is large,
comprising 64% of the approximately 64.4 million barrels per day of refined
petroleum products produced worldwide in 1998, as derived from information in
the BP Statistical Review of World Energy, 1999. Moreover, according to the
Energy Information Administration, estimates show that diesel fuel demand is
growing at a faster rate than the total demand for refined products due to the
superior fuel efficiency of a diesel engine. We believe that a significant
portion of the growing demand for transportation fuels can be satisfied through
the conversion of natural gas into ultra-clean Syntroleum fuels. We also believe
that even if substantial volumes of Syntroleum fuels were to flow into these
markets, these additional volumes would not cause a significant price
degradation based on the large size of the market. Worldwide consumption of
refined petroleum products is estimated as follows:

               WORLDWIDE CONSUMPTION OF REFINED PETROLEUM PRODUCTS


<TABLE>
<CAPTION>

  PRODUCT                    1988          1993           1998
  -------                    ----          ----           ----
                       VOLUME     %    VOLUME    %   VOLUME     %
                       ------  -----   ------  ----- ------   -----
                               (MILLIONS OF BARRELS PER DAY)
<S>                     <C>   <C>      <C>    <C>     <C>    <C>

Gasolines (1)           14.88  28.26%  16.32  28.43%  18.53  28.80%
Middle Distillates (2)  17.95  34.07   20.26  35.28   23.53  36.57
Others (3)              19.84  37.67   20.84  36.29   22.29  34.63
                        -----  ------  -----  ------  -----  ------
Total                   52.67  100.0%  57.42  100.0%  64.35  100.0%
                        =====  ======  =====  ======  =====  ======
</TABLE>

---------------------
(1)      Consists of aviation and motor gasoline and light distillate feedstock.
(2)      Consists of jet and heating kerosenes, gas oils and diesel oils.
(3)      Consists of fuel oil, refinery gas, propane, solvents, petroleum coke,
         lubricants, bitumen, wax and refinery     fuel and loss.
Source:      Derived from information in the BP Statistical Review of World
             Energy, 1999.


     Traditionally, United States consumers have relied on the less efficient
but more popular gasoline engines for automobiles. However, as economic and
environmental pressures come into play, the United States is expected to see
major growth in the replacement of gasoline engines with the more efficient
diesel engines.

     Existing crude oil refineries are expected to require additional capital
investment due to the increasingly stringent specifications regarding sulfur and
aromatics content in fuels. These investments are expected to be uneconomic for
many smaller, less sophisticated refineries. As a result, we believe that
Syntroleum fuels can be a source of the fuel necessary to displace the fuel
supplied by these refineries.

     Specialty Products, including Lubricants and Chemical Feedstock. The
synthetic crude oil produced by the Syntroleum Process can be further refined
into specialty products using conventional refining processes that can be
simplified to take advantage of the ultra-clean nature of the synthetic
feedstock. We retain the exclusive right to manufacture these products using the
Syntroleum Process under our license agreements and intend to develop and own
significant equity interests in GTL plants designed to produce these specialty
products. We believe that Syntroleum specialty products have environmental and
performance characteristics that are superior to comparable conventional crude
oil products. For example, we expect our synthetic lube-base oil will meet or
exceed new high performance and emissions standards established by the United
States federal government and the automobile industry for lubricants in new
vehicles beginning in 2003. Our targeted specialty product markets include the
following.

-     Lube-Base Oils. We have developed with others a proprietary process and
catalyst system for use in the production of high quality synthetic lube oils.
These products have a variety of industrial applications, including use as
transformer oil, passenger car motor oil, heavy-duty lubricants and synthetic
basestock. Worldwide demand for all lubricants is approximately 800,000 barrels
per day. Historically, lube oil prices have varied from approximately $40 per
barrel for the lowest quality grades to over $200 per barrel for the highest
quality synthetic grades.

                                        6
<PAGE>


Beginning in 2003, lubricants initially supplied with new vehicles in the United
States will be required to possess very high performance and emissions
characteristics, such as those produced by the Syntroleum Process. The National
Petroleum Refining Association has estimated that 60% of the current volume of
lubricants produced will not meet these specifications. We believe that this
requirement will cause a substantial increase in demand for high quality
lubricants.

-     Process Oils. Process oils are used in a number of industries involved in
the production of chemicals, textiles, rubber and plastics. These products have
a wide variety of applications, from mold release agents to ingredients in
personal care products. Process oils can also be used in electrical transformers
as a cooling and insulation agent. According to a study prepared for us in 1999,
prices for these products have historically ranged from $35 per barrel to over
$200 per barrel.

-     Waxes. Waxes are longer linear chain hydrocarbon molecules that are solid
at room temperature and have a variety of applications, including adhesives,
coatings and other products. United States demand for waxes is approximately
21,000 barrels per day. These markets have primarily been supplied with
petroleum-derived waxes. Historically, prices have varied between $30 per barrel
for the lowest quality wax to over $150 per barrel for high melting point
synthetic wax.

-     Normal Paraffins. Normal paraffins are saturated linear hydrocarbons with
molecular ranges between ten and 15 carbon atoms. These products must be 98%
pure, have low odor levels and be of water clear quality. They are primarily
used in the production of laundry detergent, cosmetics, pharmaceuticals, paints,
stains, aluminum rolling oils and other products. Prices for normal paraffins
historically have averaged between $60 and $85 per barrel.

-     Drilling Fluids. Drilling fluids are used in the drilling of oil and gas
wells as a coolant and lubricant for the drill bit and to enhance safety during
drilling operations by maintaining well pressure. Drilling fluids mixed with
well cuttings can accumulate under offshore platforms. Crude oil-based fluids,
which have been used historically, degrade slowly and can suffocate aquatic
plant and animal life. In response to increased environmental pressures,
synthetic drilling fluids have been developed and used in the Gulf of Mexico and
other offshore locations, where prices have generally ranged between $250 and
$300 per barrel. With Amoco Production Company, we have developed a synthetic
drilling fluid product that we expect will meet or exceed all current applicable
environmental requirements for use in the drilling of oil and gas wells.

     Ultra-Clean Synthetic Fuels. The market demand for ultra-clean fuels is
increasing according to a 1998 estimate by the Energy Information Administration
of alternatively fueled vehicles in use in the United States. This increase has
been driven by more stringent environmental and emission standards in most of
the world's industrialized countries and the need for vehicle manufacturers to
respond to the challenge of producing fuel-efficient engines that meet these
standards. The burden of producing cleaner fuels from conventional crude oil is
expected to substantially increase refining costs. We believe that these factors
will promote the creation of markets for premium ultra-clean synthetic fuels
produced by the Syntroleum Process.

     Key domestic and international environmental regulations and initiatives
driving the demand for ultra-clean fuels include the following.

-     Clean Air Act. The Clean Air Act of 1970 set national goals for clean and
healthy air. It established specific responsibilities for government and private
industry to reduce emissions from vehicles, factories and other pollution
sources. In 1990, the Clean Air Act was amended and updated to include further
provisions regulating ground-level ozone (urban smog), carbon monoxide and
emissions from motor vehicles. Certain tailpipe (exhaust) standards were set for
all motor vehicles to be phased in by 1996 with provisions that would allow the
EPA to set even lower standards in 1999 if warranted. In December 1999, the EPA
made such a determination and has announced lower Tier 2 restrictions on
light-duty vehicle emissions. In order to reach these emission levels, the EPA
has mandated that Tier 2 sulfur levels in gasoline fuels be lowered from the

                                        7
<PAGE>


current level of 500 parts per million to 30 parts per million beginning in
2004. Additionally, the EPA has adopted a Tier 2 reduction in the sulfur content
of highway diesel fuel from the current level of 500 parts per million to 15
parts per million beginning in 2006. The burden placed on the petroleum refining
and automobile industries to meet these new gasoline and diesel sulfur levels is
significant. In the last eight years, the sulfur content of crude oil refined in
the U.S. has increased by 20 percent as a result of shifts in the production mix
of the world's crude oil.

In 1998, the EPA implemented centrally fueled fleet and clean fuel fleet
requirements pursuant to the Clean Air Act Amendments of 1990. These
requirements affect owners and operators of fleets geographically located in
metropolitan areas with populations of 250,000 or more and designated by the
Environmental Protection Agency as being in serious, severe or extreme
noncompliance with ambient ozone standards or with specific carbon monoxide
standards. Owners of affected fleets must include in any new vehicle purchases
specified percentages of clean fuel vehicles certified to meet federal Clean Air
Act emission standards.

-     Energy Policy Act. The Energy Policy Act was passed in 1992 in order to
reduce the dependence by the United States on foreign oil imports. This act
mandates that, by the year 2001, 75% of all affected federal and state
government vehicle purchases, and 90% of all affected vehicle purchases by
private alternative fuel suppliers, must be alternative fuel vehicles. In
addition, the Energy Policy Act provides the Department of Energy with a goal of
displacing 10% of transportation fuel with non-petroleum replacement fuels,
including alternative fuels, by the year 2000, and 30% by 2010. During the
seven-year period from the passage of the Energy Policy Act in 1992 to 1999, the
total number of alternative fuel vehicles grew from 251,000 to an estimated
418,000. This represents a compounded annual growth rate of 7.6%. The use of
alternative fuels increased from 230,000 gasoline equivalent gallons in 1992 to
an estimated 341,000 gasoline equivalent gallons in 1999. This represents a
compounded annual growth rate of over 6.2% per year compared to a less than a 2%
annual growth rate for gasoline. Yet, with total United States highway gasoline
consumption currently over 125 billion gallons per year, alternative fuel use
only amounts to approximately 0.2% of the fuel used in the United States
transportation sector each year. For the goals set forth by the Energy Policy
Act to be successful, we believe an alternative fuel must be found that offers
consumers the convenience of using existing fuel distribution systems, while at
the same time meeting their expectations for vehicle power and range
performance. We believe our Syntroleum fuels could help meet these demands.

-     State Regulation. States are also looking for emission reductions. Many
ozone nonattainment areas are looking for reductions from mobile sources in
order to meet EPA's state implementation plan requirements. The Clean Air Act
requires states to develop state implementation plans demonstrating the emission
reductions and controls necessary for states to meet ozone attainment deadlines
under the Act. In response to this requirement, the California Air Resources
Board has announced plans to implement stringent new regulation on transit bus
emissions. The regulation, which begins to take effect in 2002, affects
approximately 8,500 buses at approximately 75 California transit agencies. Under
the new regulation, agencies electing to continue using older diesel buses will
be required to implement new emission controls to reduce exhaust emission and to
use low-sulfur fuels (containing a maximum of 15 parts per million) or to shift
to alternative fuels. The regulation also requires reduced exhaust particulate
matter and nitrogen oxides from new diesel engines. These reductions are
expected to be achieved only through the use of ultra-clean fuels.

-     Corporate Average Fuel Economy. Under the Corporate Average Fuel Economy
standards established under the 1975 Energy Policy and Conservation Act,
mandatory fleet fuel economy standards were imposed on all manufactures of
passenger cars and light trucks sold in the U.S. The continuing popularity of
larger family vehicles, including sport utility vehicles and pick-up trucks, has
challenged automakers to develop more fuel-efficient engines. According to the
U.S. Department of Energy 2000 Fuel Economy Guide, diesel engines in automobiles
can produce up to 63% better fuel economy than gasoline engines in automobiles.
As a result, automakers are turning to the use of diesel engines in their
attempts to supply the demand for these vehicles without violating these Federal
fuel-efficiency standards. While they do offer better fuel economy, traditional
diesel engines, when fueled by conventional diesel fuels, produce higher
emission levels of nitrous oxide and particulate matter. To comply with more

                                        8
<PAGE>


stringent environmental standards, automakers have been partnering with oil
companies to develop ultra-clean fuels for conventional diesel engines. Further,
recommendations for a maximum allowable sulfur content of 10 parts per million
and aromatic content of 15% by volume for diesel fuels in markets with the most
stringent requirements for emission controls has been proposed by the Alliance
of Automobile Manufacturers pursuant to a Worldwide Fuel Charter. In addition,
DaimlerChrysler, Ford and General Motors are currently attempting to develop a
new generation of diesel and gasoline engines that use synthetic fuel and are
more fuel-efficient.

-     European Union. The European Union is also seeking sharp reductions in
engine emissions. Sulfur content from the current level of 350 parts per million
to below 50 parts per million is currently mandated for diesel fuel by 2005, and
further changes to other specifications, including reduction of aromatic
content, are under evaluation.

     We believe that Syntroleum fuels are positioned to take advantage of the
demand for ultra-clean fuels that is anticipated to develop as a result of these
environmental and emission standards. Syntroleum fuels are substantially free of
contaminants, including sulfur, aromatics and heavy metals, and demonstrate high
operating efficiency. As a result, we believe that Syntroleum fuels, either
alone or blended with conventional fuels, can be used in existing and new
generation diesel and gasoline engines to cost-effectively meet or exceed
current and proposed emission standards. We are in the process of applying for
certification that Syntroleum diesel fuels qualify as alternative fuels under
the Energy Policy Act. By eliminating the need for specially equipped vehicles
or refueling stations, Syntroleum ultra-clean fuels can avoid the infrastructure
problems that have challenged the widespread use of other alternative fuels to
date.

     Fuel cells. A fuel cell is a device that combines hydrogen, derived from a
fuel such as natural gas, propane, methanol, gasoline or diesel, and oxygen from
the air to produce electric power without combustion. Fuel-cell systems have
advantages over conventional power generation systems including low or no
pollution, higher fuel efficiency, greater flexibility in installation and
operation, quiet operation, low vibration and potentially lower maintenance and
capital costs. Fuel cells are being developed to support a variety of markets,
including transportation, continuous stationary (residential and commercial
power) and intermittent (recreational and emergency power).

     Demand for fuel cells is expected to increase over the next several years.
Auto manufacturers and others are currently making significant investments in
fuel-cell technology. For example, DaimlerChrysler AG, one of our strategic
partners, and Ford Motor Company have invested approximately $750 million in a
partnership with Ballard Power Systems Inc., and DaimlerChrysler has indicated
that it expects this partnership to produce fuel-cell systems for 40,000
vehicles by 2004 and 100,000 vehicles by 2006. Traditional power generation
markets also represent a large opportunity for fuel-cell technology. According
to the Department of Energy, the total installed electricity generation capacity
in the U.S. in 1998 was estimated at approximately 775,885 megawatts and is
expected to double by 2015. In comparison, recent industry estimates prepared by
Kline & Company in June of 1998 have projected the demand for fuel cells to be
in the range of 2,500 to 6,000 megawatts by 2010. Allied Business Intelligence
stated in a 1999 market study that this growth in demand is expected to increase
the fuel cell market from $40 million in 1999 to over $10 billion by 2010.

     We believe that Syntroleum fuels have the potential to become ideal fuels
for fuel cells and to significantly enhance commercial opportunities for many
fuel-cell applications. The absence of sulfur, aromatics and heavy metals from
Syntroleum fuels allows for simplified fuel cell processor design, construction
and operation. As the storage and processing of the fuel for a fuel cell are
simplified, the physical size of fuel-cell components can be reduced. Because
Syntroleum fuels have almost twice the hydrogen content of other fuels,
including compressed natural gas and methanol, Syntroleum fuels enable greater
utility and wider application of fuel-cell power for vehicles. Although methanol
initially emerged as the auto industry's favored fuel-cell fuel, it has
encountered setbacks due to its high toxicity and water solubility compared to
conventional fuels and the inability to use existing gasoline distribution
systems without major modifications. We believe that Syntroleum fuels can be
distributed using the existing conventional gasoline distribution
infrastructure, have lower toxicity and similar solubility compared to
conventional fuels.

Supply of Natural Gas

     Natural Gas Resource Base. Set forth below and elsewhere in this Annual
Report on Form 10-K are estimates of identified reserves of oil and natural gas.
These estimates do not constitute proved reserves in accordance with the

                                        9
<PAGE>


regulations of the Securities and Exchange Commission. Under Securities and
Exchange Commission regulations, proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions (i.e., prices and costs as of the date the estimate is made). We
compiled these estimates of identified reserves from the referenced industry
publications and other publicly available reports to identify the magnitude of
the oil and gas resource base. We have not independently verified this
information. Accordingly, we can give no assurance as to the existence or
recoverability of the estimates of identified reserves of oil and natural gas
set forth in this Annual Report on Form 10-K. References below and elsewhere in
this Annual Report on Form 10-K to the conversion of identified amounts of
natural gas into amounts of synthetic crude oil assume that all of the
referenced natural gas could be converted at anticipated conversion rates.
Actual amounts of synthetic crude oil produced will vary based on the ability of
the producer to extract the natural gas, the composition of the natural gas and
process conditions selected for the plant, and this variance may be material.

     The world's large natural gas reserves provide an extensive resource base
from which Syntroleum fuels and specialty products can be produced. According to
information derived from the IHS Energy Group, BP Statistical Review of World
Energy, 1998, and the Department of Energy, worldwide identified natural gas
reserves are estimated to be approximately 5,429 trillion cubic feet.

     The following table presents the 1998 worldwide identified natural gas
reserves, consumption and ratio of reserves to consumption (i.e., reserve life)
by region.

<TABLE>
<CAPTION>

            IDENTIFIED 1998 WORLDWIDE NATURAL GAS RESERVES, CONSUMPTION AND RESERVE LIFE

     Region                                   Reserves   1998 Consumption    Identified Reserves
    -------                                  ---------   ----------------      to Consumption
                                                                            Ratio (Reserve Life)
                                                                           ----------------------
                                            (trillion      (trillion
                                            cubic feet)     cubic feet)          (years)

<S>                                           <C>            <C>                  <C>

Central and South America                        235          3.0                  77.3
Africa and the Middle East                     1,791          7.8                 230.2
Asia                                             402          9.1                  44.0
Europe                                           279         15.1                  18.5
North America                                    291         25.4                  11.5
Russia and other former Soviet Union regions   2,431         18.7                 130.1
Total                                          5,429         79.1                  68.6
</TABLE>

---------------------------
Source:     Information  derived from IHS Energy Group, BP Statistical Review of
            World  Energy,  1998,  and  the  Department  of  Energy.

     Additionally, identified natural gas reserves have grown at a rapid rate.
For example, identified natural gas reserves in 1988 were estimated to be
approximately 3,798 trillion cubic feet, according to Oil & Gas Journal Energy
Statistics Source Book, 13th Edition. In 1998, these reserves were estimated to
be approximately 5,429 trillion cubic feet, according to information derived
from the IHS Energy Group, BP Statistical Review of World Energy, 1998, and the
Department of Energy. This increase occurred despite the fact that, over the
same time frame, demand for natural gas increased 21%. We believe these
statistics demonstrate the need for an economic market for this resource.

     Natural Gas Field Size Distribution. The table below lists an estimate of
the distribution, by field size, of the world's natural gas fields. Only 179 of
these fields are larger than five trillion cubic feet, which is generally
considered to be the minimum size necessary to support the development of a
full-scale liquid natural gas plant based on a typical 20-year plant life.


                                       10
<PAGE>

         THE WORLD'S NATURAL GAS FIELDS

<TABLE>
<CAPTION>

     Reserves                 Number of Fields
     --------                -----------------
                            (trillion cubic feet)
<S>                               <C>
Between 50 and 500                    16
Between 5 and 50                     163
Between 1 and 5                      641
Between .5 and 1                     668
Between .25 and .5                   940
Between .1 and .25                 1,620
Between .01 and .1                 5,085
Less than .01                      6,243
                                  ------
Total                             15,376
                                  ======
</TABLE>

------------------
 Source:     IHS  Energy  Group,  1998.

     Based on field size and portability, we believe GTL plants based on the
Syntroleum Process can potentially access over 9,133 of the world's natural gas
fields, representing approximately 95% of the total reserves held in these
fields. Assuming a typical 30-year plant life, of the 15,376 natural gas fields
shown above approximately:

-     16 contain sufficient reserves to support ten or more 50,000 barrels per
day plants,

-     an additional 163 contain sufficient reserves to support one or more
50,000 barrels per day plants,

-     an additional 641 contain sufficient reserves to support one or more
10,000 to 50,000 barrels per day plants,

-     an additional 668 contain sufficient reserves to support one or more 5,000
to 10,000 barrels per day plants, and

-     an additional 940 contain sufficient reserves to support one or more 2,500
to 5,000 barrels per day plants.

An additional 6,705 of these 15,376 fields contain sufficient reserves to
support a portable 2,000 barrels per day plant for a shorter plant life.

     Stranded Natural Gas Reserves. Wood MacKenzie Consultants Limited, an
international consulting firm, has estimated in its Energy Services Newsletter
that of the world's identified natural gas reserves, approximately one-half, or
2,500 trillion cubic feet, currently have no economic market. If converted using
GTL technology, this stranded gas could generally produce approximately 250
billion barrels of synthetic crude oil.

     The term "stranded gas" generally refers to gas which exists in reservoirs
that have been discovered, but no economic market can be found for the
production, or production would be too prolific for the limited markets
available. Natural gas that is stranded is typically managed by either not
producing, or "shutting in," the gas, flaring or venting the gas, or reinjecting
the gas into the geologic formation from which it is produced.

     The large amount of stranded natural gas throughout the world is caused by
a combination of four primary factors:

-     Relatively Small Size of Many Fields. Much of the world's stranded natural
gas is located in fields of less than five trillion cubic feet, which is
generally considered the minimum size necessary to support the development of a
full-scale liquid natural gas plant for a typical 20-year plant life. The small
size of many of these fields makes the production of natural gas from the fields
uneconomical.

-     Location of Gas Relative to Markets. Much of the world's stranded natural
gas is located in areas where there is no local market and the distance to large
natural gas consuming areas is great. This makes transportation costs high and
often renders development projects uneconomic. As shown in the "1998 Worldwide
Natural Gas Reserves, Consumption and Reserve Life" table above under "Market
Potential--Supply--Natural Gas Resource Base", Africa, the Middle East and
Russia and other former Soviet Union regions have a large percentage of the
identified reserves and low levels of production, combined with long distances
from developed gas markets. This situation creates stranded gas, which is
manifested in the high reserve-to-production ratios shown.

                                       11
<PAGE>


-     Transportation Costs. Even in circumstances where a transportation system
is available for natural gas, the cost of transporting natural gas in a gaseous
state is generally substantially higher, on an energy equivalent basis, than
that of oil. For example, according to published pipeline tariffs, the cost to
transport natural gas approximately 1,600 miles via pipeline from Houston to
Boston is approximately $1.00 per million British thermal units, equal to $6.00
per barrel of oil equivalent (assuming 6 million British thermal units per
barrel), while the cost to transport crude oil from the Middle East to the
United States Gulf Coast via tanker, a distance of approximately 6,500 miles, is
less than $2.00 per barrel.

Natural gas can also be transported as liquefied natural gas. In an article
published in the July 3, 1995 edition of the Oil & Gas Journal, Mobil Oil
Corporation estimated that a five million ton per year (approximately 123,000
equivalent barrels per day) liquefied natural gas plant would incur capital
costs of between $9 billion and $13 billion (including conversion plant,
dedicated liquefied natural gas tankers and regasification facilities). On the
other hand, we estimate that a GTL plant producing the same energy output would
cost substantially less and would not necessarily require dedicated shipping or
unloading facilities.

-     Small Alternative Natural Gas Markets. Based on industry publications, we
estimate that the worldwide liquefied natural gas market is approximately 1.8
million equivalent barrels per day, which is relatively small compared to the
approximately 57 million barrels per day transportation fuels markets. Natural
gas can also be converted to ammonia and methanol. Based on industry
publications, we currently estimate that the market for ammonia on a barrel of
oil equivalent basis is approximately 893,000 barrels per day and the market for
methanol on a barrel of oil equivalent basis is approximately 393,000 barrels
per day. These markets are small relative to the size of the worldwide natural
gas resource base and relative to the approximately 74 million barrels per day
market for crude oil and related products.

     We believe that energy companies with stranded natural gas reserves will be
able to cost-effectively use our GTL technology to produce Syntroleum fuels and
products that can be sold in well-developed global markets. As a result, we
believe these companies would be able to generate a return on the exploration
and development expenditures associated with their stranded natural gas
reserves.

IMPLEMENTATION OF SYNTROLEUM'S BUSINESS STRATEGY

     The following sets forth our progress to date in implementing our business
strategy. Although we have made significant progress towards commercializing the
Syntroleum Process, we can give no assurance that licensees will construct any
plants under their license agreements, that we will be able to obtain financing
for specialty product or mobile GTL plants, that design and construction of any
of these plants will be successfully completed, that any of these plants will be
commercially successful or that these plants will be constructed or utilized on
a cost-effective basis. See "Risk Factors."

Licensing Arrangements

     We currently market four types of license agreements:

-     Master license agreements generally grant to the licensee the
non-exclusive right to enter into an unlimited number of site license agreements
to construct GTL plants based on the Syntroleum Process to produce fuels
worldwide. The licenses generally exclude the right to use the Syntroleum
Process in North America as well as in China and India due to intellectual
property protection concerns.

-     Volume license agreements generally grant to the licensee the
non-exclusive right to enter into an unlimited number of site license agreements
to construct GTL plants based on the Syntroleum Process in areas outside of
North America, China and India, subject to specified aggregate production
capacity limits.


-     Regional license agreements generally grant to the licensee the non-
exclusive right to enter into an unlimited number of site license agreements to
construct GTL plants based on the Syntroleum Process within a designated region.
The designated regions are not expected to include North America, China or
India.

                                       12
<PAGE>


-     Site license agreements generally grant to the licensee the non- exclusive
right to use the Syntroleum Process in a GTL plant at a single, specified
location for the life of the plant. This type of license may be granted under
our master, regional or volume license agreements or may be granted to licensees
for a specific site who have not otherwise entered into a master, regional or
volume license agreement.

     By entering into a master, volume or regional license agreement, a licensee
secures pricing terms for site licenses and obtains the right to use the
Syntroleum Process, the right to acquire catalysts from us for which we charge a
fixed mark-up over our cost and the right to future improvements in our GTL
technology. To date, we have entered into master license agreements with ARCO,
Ivanhoe Energy, Marathon and Texaco, and we have entered into volume license
agreements with the Commonwealth of Australia, Enron, Kerr-McGee and Repsol-YPF.
We intend to continue to market the Syntroleum Process for license primarily to
major energy companies with significant stranded natural gas reserves.

     The following description summarizes the principal terms and conditions of
the forms of our license agreements. This summary is not complete and is
qualified in its entirety by reference to the form of our master license
agreement, a copy of which has been filed as an exhibit to this Annual Report on
Form 10-K. Agreements entered into with specific licensees may differ in
material respects from the current forms of our various license agreements.

     Initial Deposits and License Fees. At the inception of a master, volume or
regional license agreement, the licensee is generally required to make an
initial deposit to us, which is credited against future site-specific license
fees. The amount of the initial deposit depends on market conditions and, in the
case of volume and regional license agreements, the volume limitation and the
size and location of the region covered. We have received an aggregate of $38
million in cash as initial deposits and option fees under our existing license
agreements. In some cases, we have acquired technologies or commitments to
provide funding for future development activities in lieu of initial cash
deposits.

     Generally, the amount of the license fee for site licenses under our
master, volume and regional license agreements is determined pursuant to a
formula based on the discounted present value of the product of (1) the annual
maximum design capacity of the plant, (2) an assumed life of the plant and (3)
our per barrel rate, which currently is approximately $.50 per barrel of daily
capacity. Our license fees for new plants may change from time to time based on
the size of the plant, improvements that reduce plant capital cost and
competitive market conditions. Our existing master and volume license agreements
allow for the adjustment of fees for new site licenses under certain
circumstances. We expect that license fees under existing agreements will be
paid in increments when certain milestones during the plant design and
construction process are achieved.

     Catalyst Sales and Process Design Packages. Our license agreements grant
the licensee the right to acquire from us or vendors designated by us
proprietary catalysts for use in the synthesis gas reaction and the Fischer-
Tropsch reaction, in each case at prices based on our cost plus a margin. We
currently estimate that these catalysts will be required to be replaced every
three to five years. Licensees also have the right to acquire proprietary
reactors used in the Syntroleum Process from vendors approved by us. In
addition, under our license agreements, licensees are required to purchase a
process design package for plants covered by the license from us at a fee based
on our costs plus a specified margin. We may, however, develop the process
design package with the assistance of a third party. We are also required to
provide certain technical support to licensees at specified fees.

     Other License Terms. As part of our network model for improving our GTL
technology, we acquire a royalty-free, non-exclusive license to any invention or
improvement to the Syntroleum Process that is developed by the licensee,
together with the right to grant corresponding sublicenses to our other
licensees who have granted us similar rights. Licensees also acquire the right
to use subsequent inventions or improvements to the Syntroleum Process that we
have acquired from other licensees. Our license agreements may be terminated by
the licensee, with or without cause, upon 90 days' notice to us.

                                       13
<PAGE>

Key Testing and Commercial Projects

     In addition to our nominal two barrel per day pilot plant and laboratory
facilities located in Tulsa, Oklahoma, which are the primary sites for our
research and development activities, we have been or are currently involved in
several projects and initiatives, including the following.

     Cherry Point Project. We were a joint participant with ARCO in a 70 barrel
per day GTL demonstration plant located at ARCO's Cherry Point refinery in the
State of Washington. The plant began operating in July 1999 and operated
successfully until it was shut down at the completion of testing shortly after
June 30, 2000. ARCO funded the construction and operation of this plant under
our joint development agreement.  Plant operations exceeded our expectations and
successfully demonstrated a number of key aspects of our proprietary autothermal
reformer and moving bed reactor designs and related catalyst performance.  The
data and experience generated from our participation in plant operations will be
useful in our efforts to apply these reactor designs on a commercial basis both
for fuels and specialty product plants.   We are currently conducting
engineering studies with others for commercial-scale plants using these reactor
designs.

     Sweetwater Project. We are developing a nominal 10,000 barrel per day
specialty product plant, which we call the Sweetwater plant. We currently
anticipate that this plant will produce synthetic lube oil, normal paraffins,
process oils and light paraffins. The plant is expected to use a fixed tube
reactor design which produces a high yield of the desired products with high wax
content and has lower scale-up risks than other reactor designs. The plant is
also expected to include additional refining equipment necessary to produce the
targeted specialty products. We plan to construct this plant through a joint
venture. In February 2000, we selected a site for the plant about four
kilometers from the North West Shelf liquid natural gas facility on the Burrup
Peninsula of Western Australia.

     In November 1999, we signed a project development agreement with Tessag, a
wholly owned subsidiary of RWE AG, to provide us with a fixed price for the
design and construction of the Sweetwater plant. Tessag also agreed to pay
liquidated damages up to certain levels in the event certain process and product
specifications are not achieved.  We currently expect that Tessag will complete
the plant design and, subject to completion of plant financing, begin
construction in 2001. We expect the plant to be operational in late 2003 or
early 2004, although construction of the plant will be subject to the risk of
delay inherent in any large construction project.

     The State of Western Australia has announced its intention to assist the
Sweetwater project with an AUD $30 million (approximately U.S. $17 million)
common use infrastructure package, including a desalinization plant to which our
plant will supply steam and from which our plant will receive cooling water. In
addition, we have entered into a gas purchase agreement with the North West
Shelf Gas Partners, whose members include affiliates of BHP Petroleum, BP,
Chevron, Mitsui, Mitsubishi, Royal Dutch Shell and Woodside Energy Ltd. Subject
to certain conditions, North West Shelf Gas Partners have agreed to supply the
Sweetwater plant with the natural gas required to operate the plant at full
capacity for 20 years.

     In August 2000, we entered into a license agreement and a separate loan
agreement with the Commonwealth of Australia.  Under the loan agreement, the
Commonwealth will make a non-amortizing, interest-free loan to us in the amount
of AUD $40 million (approximately U.S. $22 million) with a 25-year maturity to
support the further development and commercialization of GTL technologies in
Australia.  Under the loan agreement we have agreed to conduct a feasibility
study on constructing a large-scale GTL fuels plant in Australia.  During 2000,
we entered into non-binding letters of intent with both Enron and Ivanhoe Energy
Inc. with respect to their equity participation in the Sweetwater project.
Consummation of the transactions contemplated by these letters of intent
requires the satisfaction of a number of conditions, some of which are not
within our control. For a discussion of these letters of intent and the license
and loan agreement with the Commonwealth of Australia, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources - Initial Specialty Product GTL Plant."

     Tessag recently completed front end engineering and design and has provided
us a price quote of $506 million for the engineering, procurement and
construction of the Sweetwater plant.  The quote includes provision for expanded
refining capabilities that will give the plant greater flexibility for a wider
range of products than originally contemplated.  The quote does not include
interest during construction and other owner's costs, which include proprietary
catalysts to be supplied by Syntroleum.  These costs are yet to be finalized,
but could represent a substantial portion of total plant costs.  Tessag's price
quote may change due to fluctuations in currency exchange rates, but will be
converted into a firm, lump sum, dollar denominated contract upon final closing
of the financing for the plant.  With the quote completed, we are working with
Tessag toward finalizing the fixed price EPC contract.  However, we can give no
assurance that the contract will be finalized.  If finalized, the contract may
be on terms materially different than the terms currently anticipated.  Upon
execution of the EPC contract, we can then proceed with completing the debt and
equity financing for the project.

                                       14
<PAGE>


     We currently expect the capital costs of the Sweetwater project to be
funded primarily by non-recourse senior and subordinated debt at the project
level, as well as the equity financing discussed above, together with our own
equity contribution.  We are currently seeking to finalize the equity investment
transactions discussed above and we are exploring sources of debt capital to
fund final design and construction.  However, we can give no assurance that the
necessary capital for this project will be obtained.

     Fuel Cell Testing. We have participated in tests performed by the Argonne
National Laboratory, Epyx Corporation and Northwest Power Systems in the
evaluation of our synthetic fuels for fuel-cell applications. Fuels produced by
the Syntroleum Process were determined to have physical properties similar to
conventional fuel equivalents and to yield more hydrogen per fuel equivalent
volume. Argonne tested Syntroleum fuels in its proprietary fuel-cell reformer,
and results indicated performance comparable to conventional gasoline, although
the equipment had not been optimized for the higher hydrogen content of our
fuels. Under a program sponsored by the Department of Energy, Epyx Corporation,
a leading fuel processing technology company, successfully demonstrated the high
efficiency and low emission operation of a fuel-cell power system using
synthetic fuel produced by the Syntroleum Process and a Plug Power fuel cell. In
addition, Northwest Power Systems, a leading manufacturer of patented fuel cell
systems, has demonstrated that synthetic fuels produced by the Syntroleum
Process are an effective on-board source of hydrogen to power fuel cells. Tests
conducted by Northwest Power also confirmed that Syntroleum fuels produced a
higher yield of hydrogen than comparable fuel produced from crude oil and
successfully powered their fuel cells.

RESEARCH AND DEVELOPMENT

     One of our key strategies is to continue to lower the capital and operating
cost of our GTL technology through research and development. We have spent
approximately $4.2 million in 1998, $8.3 million in 1999 and $12.6 million in
2000 on pilot plant and research and development facilities and activities.  Our
continued research and development efforts will take place in four primary
areas: process design, catalyst development, reactor design and heat
integration/power recovery. For a discussion of our efforts in these areas, see
"--The Syntroleum Process."

     We lease a 4,500 square foot laboratory and own a 16,500 square foot
laboratory facility located on 100 acres of land where we are engaged in
extensive development and testing of Syntroleum products. These facilities also
house our product refining research and development activities, including
hydrogen saturation, hydroisomerization, hydrocracking and distillation
capabilities, as well as a fully automated dual train bench scale
hydroprocessing unit. We have recently completed construction of a large scale
hydroprocessing pilot unit and are in the pre-commissioning stage of start up
operations of this facility. We also have arrangements with a number of
companies for hydroprocessing larger quantities of our synthetic products. Our
laboratories currently have 21 fixed tube reactors, two fluidized bed reactors,
and six continuous stirred tank reactors in which automated tests are run and
catalyst systems are evaluated and developed. We also have arrangements with a
number of universities and companies for a full range of state-of-the-art
catalyst evaluation.

     As of March 1, 2001, we had 59 employees in our laboratory, pilot plant and
engineering departments, 38 of whom are chemists, engineers or other degreed
professionals (15 with masters or Ph.D. degrees) devoted to research and
development activities. A number of other chemists, engineers and professionals
that are employed by our licensees and joint development partners are also
contributing efforts to the further development and commercialization of the
Syntroleum Process. We also have access to laboratory and test facilities
through our joint development partners. For example, both Texaco and ARCO have
performed catalyst tests at their own or contract facilities, and testing with
Catalytica and Marathon regarding low heating value gas combustion has been
conducted at Catalytica's and other test facilities.

SALES AND MARKETING

     We intend to maintain an active marketing and sales effort to develop and
promote the Syntroleum Process through several channels. We have been and will
continue to be an active participant at industry conferences relating to GTL
processes. During 2000, representatives of our company spoke at 33 different
conferences at locations around the world. We also intend to continue to write
and publish papers on topics regarding the implications of GTL technology to the
energy and transportation industries. Additionally, we will continue to educate
and inform our customers through the use of multi-media and print presentations.
We also intend to establish brand recognition for specialty products to be
produced by our specialty plants. We have received trademark and service mark
rights to the name "Syntroleum" in the United States and have applications
pending to register the trademark in various foreign countries.

                                       15
<PAGE>


     In addition, Tessag, Bateman, AMEC and other engineering companies are
familiar with our GTL technology and have assisted us in marketing the
Syntroleum Process. Our agreements with engineering firms generally provide
these firms with the right to market the Syntroleum Process. We believe that
these relationships will expand our marketing effort in a cost-effective manner.
We currently have 12 employees in our business development and marketing
departments, six of whom hold advanced degrees, and we also retain a full-time
sales representative in London, England.

HISTORICAL DEVELOPMENT OF GTL TECHNOLOGY

     The basis for most GTL technologies, including the Syntroleum Process,
originated in 1923 when two German chemists, Franz Fischer and Hans Tropsch,
discovered that synthesis gas (carbon monoxide and hydrogen) could be
catalytically converted into synthetic hydrocarbons using a precipitated cobalt
catalyst. In the Fischer-Tropsch reaction, the synthesis gas in contact with the
catalyst surface at appropriate temperatures and pressures causes a chemical
reaction that produces hydrocarbons and byproducts consisting primarily of water
and carbon dioxide.

     Prior to and during World War II, development of the Fischer-Tropsch
process occurred primarily in Germany. Due to Germany's significant coal
resources and limited oil and gas resources, these development activities
focused exclusively on the conversion of coal into fuels and chemicals. Between
1934 and 1945, nine government-funded, coal-to-liquids plants were built in
Germany using coal as the feedstock.

     Following World War II, development efforts continued in the United States
and South Africa. In 1950, Texaco participated in the Hydrocol plant, which was
an 8,000 barrel per day synthetic fuel plant that was built in Brownsville,
Texas and used natural gas as the feedstock. Although the plant was a
technological success, it was not economic to operate because a new gas pipeline
and changes in the price of oil created a more economic market for the natural
gas, which resulted in the shutdown of the plant in 1953. In 1950, the South
African government formed a predecessor of Sasol (which was later privatized) to
develop synthetic fuels using coal as the feedstock. Three coal-to-liquids
plants were built in South Africa between 1955 and 1982, and a natural gas based
plant was built in 1993. Each of these plants is still in operation today.

     Following the oil embargo of 1973, further development efforts focused on
utilizing both coal and natural gas to produce synthesis gas for the
Fischer-Tropsch process. Several major oil companies and several governments
funded research into synthetic fuels. The worldwide recession of 1982 and the
related drop in oil prices resulted in the termination of most coal-related
development activities. However, development activities in the conversion of
natural gas continued during the 1980's and 1990's. In 1985, Mobil built a GTL
plant in Montuni, New Zealand, and in 1993 Shell built a GTL plant in Bintulu,
Malaysia. Only the Malaysian plant remains operational as a GTL plant. Several
major oil companies, including BP, Chevron, Conoco, Exxon, Phillips and Shell,
have recently announced projects to construct gas-to-liquids plants.

     We believe the generally accepted capital cost target for a GTL plant to be
cost effective for the production of transportation fuel is $30,000 per barrel
of daily plant capacity or less. This cost target is determined by calculating
the capital cost necessary to achieve an expected return on an investment in a
GTL plant. Factors influencing the expected return include operating costs,
feedstock cost and product prices. Capital costs at or below $30,000 per barrel
of daily plant capacity generally result in an expected return on the
investment, assuming operating costs comparable to those for a conventional
refinery, natural gas feedstock prices below $1.00 per million British thermal
units and oil prices above $18 per barrel.

     We believe that to date no company has built a commercial-scale GTL plant
that has broken this cost barrier. In addition, we believe that each of the
current competitive GTL technologies has taken in excess of ten years to
develop, resulting in significant barriers to entry for potential new
participants.

THE SYNTROLEUM PROCESS

    The Syntroleum Process involves two catalytic reactions. The first reaction
converts natural gas into synthesis gas through our proprietary autothermal
reformer reactor, and the second reaction converts the synthesis gas into
hydrocarbons through the Fischer-Tropsch reaction over a proprietary catalyst.
The following diagrams illustrate the elements involved in these reactions, but
are not in exact proportions.

                                       16
<PAGE>

                                     STEP 1
                   CONVERSION OF NATURAL GAS TO SYNTHESIS GAS


                               [GRAPHIC OMITED]



                                     STEP 2
                           FISCHER - TROPSCH SYNTHESIS


                               [GRAPHIC OMITED]

     Our goal in developing this process has been to substantially reduce both
the capital and operating costs and the minimum economic size of a GTL plant. We
believe that by reducing the complexity of the process we have achieved this
goal. We have developed and continue to develop variations of our basic process
design in an effort to further lower costs and increase the adaptability of the
Syntroleum Process to a wide variety of potential applications.

     Although we believe that the Syntroleum Process can be utilized in
commercial-scale GTL plants, we can give no assurance that commercial-scale GTL
plants based on the Syntroleum Process will be successfully constructed and
operated or that these plants will yield the same economics and results as those
demonstrated on a pilot plant basis. In addition, improvements to the Syntroleum
Process currently under development may not prove to be commercially applicable.
See "Risk Factors--Risks Relating to our Technology."

Fischer-Tropsch Catalyst Systems

     We have developed several different proprietary catalysts systems for use
in the Fischer-Tropsch reaction in order to allow for matching a catalyst system
to a particular reactor design and provide more flexibility in matching the
Syntroleum Process to the desired application.

     Based upon pilot tests of catalysts that we have manufactured, we believe
that a number of proprietary catalyst systems meet or exceed the activity and
selectivity targets necessary for commercial application in some current
Syntroleum Process designs, including the catalysts associated with the moving
bed reactor recently operated at the pilot plant jointly developed with ARCO at
ARCO's Cherry Point refinery.

     Most Fischer-Tropsch catalysts produce a very waxy synthetic crude oil.
Typically, more than 50% of a barrel of synthetic crude oil is solid at room
temperature due to the high wax content. These waxy hydrocarbons are typically
processed through a hydrocracker to convert them into liquid hydrocarbons at
room temperature that can be further processed into transportation fuels. Our
proprietary "high alpha" catalyst produces a very waxy synthetic crude oil which
can be further processed through hydrocracking to make liquid synthetic fuels,
or, with other refining processes, the waxy portion can be converted into higher
value specialty products such as synthetic lubricants.

                                       17
<PAGE>

     Under our agreement with Criterion, Criterion has manufactured, in its
commercial facilities, batches of our catalysts in quantities sufficient to
confirm that the performance of these catalysts is comparable to the same
catalyst produced by us and that these catalysts can be produced in commercial
quantities at targeted cost levels. We estimate that the useful life of our
Fischer-Tropsch catalysts will be three to five years under normal operating
conditions.

     We plan to improve existing catalysts and continue to develop additional
catalyst formulations for use in the Syntroleum Process. Catalyst development is
a complex process requiring significant scientific skill and resources. We have
in the past and intend to continue to devote substantial resources to research
and development activities to produce Fischer-Tropsch catalysts with improved
activity rates, selectivity and active life, all at reasonable manufacturing
cost. In addition, we intend to enhance our catalyst development activities
through catalyst joint development programs with our joint development partners.
From time to time, we also retain catalysis experts on a consulting basis to
assist in catalyst development.

Fischer-Tropsch Reactor Designs

      We have tested at our pilot plant several different proprietary
Fischer-Tropsch reactor designs and associated catalysts for use in the
Syntroleum Process. These include multiple fixed bed vertical tubular reactors,
a fluidized bed reactor for use with our chain-limiting catalyst and a moving
bed reactor. In addition, under our agreement with ARCO, ARCO constructed and
operated a 70 barrel per day GTL pilot plant that tested the moving bed reactor
on a larger scale. We have several pending United States and foreign patent
applications related to our Fischer-Tropsch reactors.

Heat Integration and Power Recovery

     Compression energy is the primary energy consumer in the Syntroleum
Process.  Engineering studies conducted by Bateman and others have demonstrated
that the heat generated by the two catalytic reactions in the Syntroleum Process
can be captured in the form of mechanical and electrical energy sufficient to
supply all of a GTL plant's needs plus a surplus for other uses, if desired. We
have developed several heat integration and power recovery schemes with partners
such as GE Power Systems to broaden the flexibility of the Syntroleum Process
and, in some cases, lower the capital cost as well as the number of pieces of
major equipment necessary for operation of a GTL plant.

     Different configurations of GTL plants based on the Syntroleum Process can
also change the energy sources within the plant and the excess energy produced.
For example, a steam turbine can be incorporated into the process and utilize
the steam produced by the auto-thermal reformer and Fischer-Tropsch reactions to
produce energy for compression, and electrical power for commercial sale. In
addition, we have developed a configuration that utilizes the low-heating-value
residue stream from the process as feedstock for a specially designed gas
turbine that can utilize very low-heating-value gas. Several of these heat
integration and power recovery schemes are the subject of United States patents
and patent applications and foreign patent applications and are a part of our
joint development efforts with others.

Product Upgrading

     Synthetic liquid hydrocarbons made from the Syntroleum Process can be
refined into fuels using conventional refining processes such as hydrocracking.
However, we believe that because of the purity and uniform nature of the
synthetic hydrocarbon molecules, conventional process configurations and
conditions may not be optimum. We have developed new processes to further refine
synthetic liquid hydrocarbons made from the Syntroleum Process in a manner that
maximizes the value of the refined product streams, while minimizing the
processing cost. In August 2000, we began offering our licensees access to
proprietary hydrocracking technology optimized for converting synthetic crude
oil into ultra-clean, sulfur-free synthetic transportation fuels, primarily
diesel and jet fuels.

                                       18
<PAGE>

Advantages Over Competing Processes

     We believe that the method by which our process uses air directly from the
atmosphere is a unique characteristic and a primary competitive advantage of the
Syntroleum Process. Competitive processes for the conversion of natural gas into
synthetic hydrocarbons generally utilize either steam reforming or a combination
of steam reforming and partial oxidation with pure oxygen in the conversion of
natural gas to synthesis gas. Steam reformers react steam with natural gas to
produce synthesis gas. A steam reformer is a relatively complex unit that
consists of a large fired heater with catalyst-filled tubes. Because the
reaction operates at high temperature and pressure, the tubes are made of exotic
alloys and are expensive. Operating costs are increased due to the endothermic
nature of the process, which requires a continuous input of heat. Processes that
utilize a combination of steam reforming and partial oxidation with pure oxygen
also require an air separation plant to produce pure oxygen. The air separation
plant must be constructed with expensive metals and materials, because its
operation involves very low temperatures and requires significant energy input,
as well as operating risks inherent in handling pure oxygen. Moreover, the use
of pure oxygen generates synthesis gas that is free of nitrogen. While the
Fischer-Tropsch reaction in competitive processes is designed to occur without
the presence of nitrogen, the Syntroleum Process is designed to utilize the
nitrogen in the Fischer-Tropsch process to remove a portion of the heat
generated by the process. Use of the auto thermal reformer reactor in the
Syntroleum Process also provides advantages over competitive processes because
of its relatively low capital and operating costs. In addition to lowering the
capital cost, the elimination of an air separation plant and steam reformer has
the additional advantage of reducing the size and complexity and lowering the
energy requirement of GTL plants based on the Syntroleum Process.


     We believe that another advantage of the Syntroleum Process is the absence
of recycle loops necessary in some competitive processes, which also tends to
lower capital costs. In the Fischer-Tropsch stage of some competitive processes,
a recycle loop is utilized in order to maximize the output of hydrocarbons and
help control the heat generated by the reaction. As a result, these processes
are designed to avoid the introduction of inert gases (including nitrogen) into
the process, which would otherwise build up in the system and hinder the
reaction.

Feedstocks

     The Syntroleum Process is designed to produce approximately six million
British thermal units of liquid hydrocarbons from between 9.5 and 13 million
British thermal units of natural gas feedstock.  Conversion efficiency varies
depending on gas composition and process conditions selected for each plant. One
of the benefits of the Syntroleum Process is its ability to utilize natural gas
containing nitrogen and carbon dioxide, up to specified levels, without removing
these impurities prior to consumption by the plant. However, natural gas that
contains sulphur, metals and other materials that poison catalysts must be
processed in order to remove these contaminants prior to the use of the natural
gas in the first catalytic reaction.

Byproducts and Emissions

     A byproduct of the Syntroleum Process is synthesized water that, with
treatment to remove organic materials, could be sold commercially as industrial
or irrigation water in areas where sufficient demand exists. Based on pilot
plant tests, we believe that approximately 1.3 barrels of synthesized water can
be produced for each barrel of synthetic crude oil produced.

     Depending on the process configuration, emissions from the Syntroleum
Process are expected to include nitrous oxide, carbon monoxide, carbon dioxide
and light hydrocarbons, which we believe will generally be within applicable
emissions standards. Spent catalysts are expected to be processed by a catalyst
reclaimer who will recover useful metals and be responsible for disposal of the
nonreclaimed portion of the catalyst.

INTELLECTUAL PROPERTY

     Our success depends on our ability to obtain, protect, and enforce our
intellectual property rights, to successfully avoid infringing the valid and
enforceable intellectual property rights of others and, if necessary, to defend
against any alleged infringements. We regard the protection of our proprietary
technologies as critical to our future success and we rely on a combination of
patent, copyright, trademark and trade secret law and contractual restrictions
to protect our proprietary rights. We pursue protection of the Syntroleum
Process primarily through patents and trade secrets. It is our policy to seek,
when appropriate, protection for our proprietary products and processes by
filing patent applications in the United States and selected foreign countries
and to encourage or further the efforts of others who have licensed technology
to us to file patent applications. Our ability to protect and enforce these
rights involves complex legal, scientific and factual questions and
uncertainties.

                                       19
<PAGE>

     We currently own, or have licensed rights to more than 101 patents or
patent applications pending in the United States and various foreign countries
that relate in general to one or more embodiments of the Syntroleum Process.

     We can give no assurance that additional patents will be granted with
respect to any patent applications filed by us or our licensors. Further, any
patents issued or licensed to us might not provide us with commercial benefit or
might be infringed, invalidated or circumvented by others. The approval or
rejection of our patent applications by the U.S. Patent Office may take several
years.

     The availability of patents in foreign markets, and the nature of any
protection against competition that may be afforded by such patents, is often
difficult to predict and varies significantly from country to country. Moreover,
we or our licensors may choose not to seek, or may, for a variety of reasons, be
unable to obtain, patent protection in a country that might become an important
market for our GTL technology.

     In addition to patent protection, we also rely significantly on trade
secrets, know-how and technological advances, which we seek to protect, in part,
through confidentiality agreements with our collaborators, licensees, employees
and consultants. If these agreements are breached, we might not have adequate
remedies for the breach. In addition, our trade secrets and proprietary know-how
might otherwise become known or be independently discovered by others.

     It is our policy to honor the valid, enforceable intellectual property
rights of others. Our success depends on our ability to avoid infringing the
valid, enforceable intellectual property rights of others and, if need be,
defending ourselves against any claims of infringement. While we have made
efforts to avoid any such infringement, commercialization of our GTL
technologies may give rise to claims that the technologies infringe upon the
patents or other proprietary rights of others.

     Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought against
us, our partners or our licensees claiming damages and seeking an injunction
that would prevent us, our partners or our licensees from testing, marketing or
commercializing the affected technologies. Major energy companies seeking to
gain a competitive advantage may have an interest in bringing one of these
actions. If such an action was successful, in addition to potential liability
for damages, we, our partners or our licensees could be required to obtain a
license in order to continue to test, market or commercialize the affected
technologies. Any required license might not be made available or, if available,
might not be available on acceptable terms, and we could be prevented entirely
from testing, marketing or commercializing the affected technology. We may have
to expend substantial resources in litigation, either in enforcing our patents,
defending against the infringement claims of others, or both. Many possible
claimants, like the major energy companies that have or may be developing
proprietary GTL technologies competitive with the Syntroleum Process, have
significantly more resources to spend on litigation. We have conducted a review
of more than 600 existing patents applicable to the GTL field and believe that
we are not infringing on the valid, enforceable patents of others. To date, we
have not been notified of any claim that our GTL technology infringes the
proprietary rights of any third party. However, we can give no assurance that
third parties will not claim infringement by us with respect to past, present or
future GTL technologies.

     In any potential intellectual property dispute involving us, our licensees
could also become the target of litigation. Our license agreements require us to
indemnify the licensees against specified losses, including the losses resulting
from patent and trade secret infringement claims, subject to a cap of 50% of the
license fees received. Our indemnification and support obligations could result
in substantial expenses and liabilities to us. These expenses or liabilities
could have a material adverse effect on our business, operating results and
financial condition. See "Risk Factors--Risks Relating to our Technology."

                                       20
<PAGE>

EMPLOYEES

     We had 98 employees at March 1, 2001, including 47 employees involved in
research and development and pilot plant operations, 12 employees in business
development and marketing, 12 employees in engineering, and 27 employees in
finance, legal, information technology and administration. None of our employees
are represented by a labor union. We have experienced no work stoppages and
believe that our relations with our employees are excellent.

GOVERNMENT REGULATION

     We will be subject to extensive federal, state and local laws and
regulations relating to the protection of the environment, including laws and
regulations relating to the release, emission, use, storage, handling, cleanup,
transportation and disposal of hazardous materials and employee health and
safety. In addition, our GTL plants will be subject to the environmental and
health and safety laws and regulations of any foreign countries in which these
plants are to be located. For example, our Sweetwater project will require us to
comply with extensive Australian environmental, health and safety laws.
Violators of these laws and regulations may be subject to substantial fines,
criminal sanctions or third party lawsuits and may be required to install costly
pollution control equipment or, in some extreme cases, curtail operations.
Further, these laws and regulations may limit or prohibit activities on lands
lying within wilderness areas, wetlands or other protected areas. Our operations
in the United States are also subject to the federal "Superfund" law, and
similar state laws, which can impose joint and several liability for site
cleanup, regardless of fault, upon statutory categories of parties, including
our company, that sent wastes offsite for disposal and current owners and
operators of property. Environmental laws and regulations often require the
acquisition of a permit or other authorization before activities may be
conducted and compliance with laws and regulations, and any requisite permits,
can increase the costs of designing, installing and operating our GTL plants.
For example, we are required to obtain numerous Australian environmental, health
and safety permits in connection with our Sweetwater project.

     GTL plants will generally be required to obtain permits under applicable
state and federal clean air and water laws and various permits for industrial
siting and construction. Emissions from a GTL plant, primarily from the gas
turbine, will contain nitrous oxides and may require abatement equipment to be
installed in order to meet state and federal permit requirements. Additionally,
GTL plants will be required to adhere to state and federal laws applicable to
the disposal of byproducts produced, including waste water and spent catalyst.

     Although we do not believe that compliance with environmental and health
and safety laws in connection with our current operations will have a material
adverse effect on us, the future costs of complying with environmental laws and
regulations and containing or remediating contamination cannot be predicted with
certainty. In the future, we could incur material liabilities or costs related
to environmental matters, and these environmental liabilities or costs
(including fines or other sanctions) could have a material adverse effect on our
business, operating results and financial condition. We do not currently carry
environmental impairment liability insurance to protect us against these
contingencies but may, in the future, seek to obtain insurance in connection
with our participation in the construction and operation of GTL plants if
coverage is available at reasonable cost and without unreasonably broad
exclusions.

OPERATING HAZARDS

     Operations at our GTL plants will involve a risk of incidents involving
personal injury and property damage due to the operation of machinery in close
proximity to individuals and the highly flammable nature of natural gas and the
materials produced at these plants. The frequency and severity of personal
injury and property damage incidents will affect our operating costs,
insurability and relationships with customers, employees and regulators. Any
significant frequency or severity of these incidents, or the general level of
compensation awards, could affect our ability to obtain insurance and could have
a material adverse effect on our business, operating results and financial
condition.

MANAGEMENT AND DISPOSITION OF REAL ESTATE AND MISCELLANEOUS ASSETS

     Our predecessor, SLH Corporation, acquired our real estate assets from Lab
Holdings, Inc. concurrent with the distribution by Lab Holdings to its
stockholders of all of SLH's outstanding common stock. These assets reflect the
remaining assets of a real estate development business that was conducted by Lab
Holdings in association with a previously owned life insurance company that was
sold in 1990. Real estate assets, as of December 31, 2000, consisted of land in
Houston, Texas comprised of 281 acres of undeveloped land and 108 residential
lots available for sale known as the "Houston Project." The total real estate
inventory had an aggregate carrying value at December 31, 2000 of approximately
$3.3 million.

                                       21
<PAGE>

     Our real estate assets are owned by our subsidiary, Scout Development
Corporation.  The Houston Project is owned by 529 Partners, Ltd., a Texas
limited partnership in which Scout holds a 75% interest.  529 Partners is
developing the property for residential and light commercial purposes.  During
2000, 529 Partners sold 82 lots of the Houston Project for residential use for
approximately $1,663,000.  We expect that the balance of the tract will be
developed by 529 Partners for residential use and ultimate sale.

     Our other assets at December 31, 2000 included (1) an investment in a
privately owned developer of proprietary bone substitute technology, which had a
carrying value of approximately $565,000, (2) $87,069,000 million of cash,
government securities and current receivables, (3) an investment in a privately
held venture capital limited partnership, which had a carrying value of
$476,000, (4) a 49.9% interest in a community retail shopping center in
Gillette, Wyoming and (5) an equity investment in a recently renovated hotel in
Tulsa, Oklahoma. We plan to liquidate all of these investments other than the
cash, government securities and current receivables in an orderly manner to
maximize their value to stockholders.

     The retail shopping center in which we have an interest contains
approximately 163,454 square feet of net leasable area and 7.5 acres of
partially undeveloped land.  At the end of 2000, the center was 90% occupied.
Rental revenue totaled $878,000 for 2000.  The average annual gross rental per
occupied square foot was $5.99.  In addition to rental revenue, tenants are
responsible for their share of common area maintenance.  During 2000, common
area maintenance collections from tenants totaled $106,000.  The property is
subject to industrial revenue refunding bonds in the amount of $6 million that
are secured by a bank letter of credit and guaranteed by Scout.  The letter of
credit is secured by a $3.2 million Treasury Note that is pledged by us to the
issuer of the letter of credit.

     We believe that the real estate properties are adequately covered by
insurance with coverages for real and personal property, commercial general
liability, commercial crime, garage keepers legal liability, earthquake, flood,
windstorm and hail.

     Our subsidiary, Scout, is subject to contingent obligations under leases
and other instruments incurred in connection with real estate activities and
other operations.  We believe that adequate accruals have been made for the
contingent liabilities on our financial statements and that none of these are
deemed to be material, individually or in the aggregate.

     Scout is subject to several United States environmental laws, including:
the Clean Air Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Emergency Planning and Community Right-to-Know Act, the
Federal Water Pollution Control Act, the Oil Pollution Act of 1990, the Resource
Conservation and Recovery Act, the Safe Drinking Water Act and the Toxic
Substances Control Act.  Scout is also subject to the United States
environmental regulations promulgated under these acts, as well as state and
local environmental regulations that have their foundation in the foregoing
United States environmental laws.
As is the case with many companies, Scout may face exposure to actual or
potential claims and lawsuits involving environmental matters with respect to
its current inventory of real estate as well as previously owned real estate.
However, no such claims are presently pending and Scout has not suffered, and
does not anticipate that it will suffer, a material adverse effect as a result
of any past action by any governmental agency or other party, or as a result of
noncompliance with such environmental laws and regulations.

RISK FACTORS

     You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones facing our company. If any
of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In that case, the
trading price of the common stock could decline, and you may lose all or part of
your investment in our common stock.

RISKS RELATING TO OUR TECHNOLOGY

     We might not successfully commercialize our technology, and
commercial-scale GTL plants based on the Syntroleum Process may never be
successfully constructed or operated.

                                       22
<PAGE>

     To date, no commercial-scale GTL plant based on the Syntroleum Process has
been constructed. A commercial-scale GTL plant based on the Syntroleum Process
might never be successfully built either by us or by any of our licensees. Our
success depends on our ability, and the ability of our licensees, to
economically design, construct and operate GTL plants based on the Syntroleum
Process on a commercial scale. The successful commercial construction and
operation of a GTL plant based on the Syntroleum Process depends on a variety of
factors, many of which are outside our control. Although we are currently
developing the Sweetwater plant, our first commercial-scale GTL plant, we do not
know if we will be successful in obtaining the necessary debt and equity
financing for this plant and we do not know for certain when construction of
this plant will begin or when it will become operational. We do not have any
experience managing the financing, design, construction or operation of
commercial-scale GTL plants, and we may not be successful in doing so.

     Commercial-scale GTL plants based on the Syntroleum Process might not
produce results necessary for success, including results demonstrated on a
laboratory and pilot plant basis.

     A variety of results necessary for successful operation of the Syntroleum
Process could fail to occur at a commercial plant, including reactions
successfully tested on a laboratory and pilot plant basis. Results that could
cause commercial-scale GTL plants to be unsuccessful include:

-     lower reaction activity than that demonstrated in laboratory and pilot
plant operations, which would increase the amount of catalyst or number of
reactors required to convert synthesis gas into liquid hydrocarbons and increase
capital and operating costs,

-     shorter than anticipated catalyst life, which would require more frequent
catalyst purchases and therefore increase operating costs,

-     excessive production of gaseous light hydrocarbons from the Fisher-Tropsch
reaction compared to design conditions, which would lower the anticipated amount
of liquid hydrocarbons produced and lower revenues and margins from plant
operations, and

-     inability of the gas turbines or heaters integrated into the Syntroleum
Process to burn the low-heating-value tail gas that is produced by the process,
which would result in the need to incorporate other methods to generate
horsepower for the compression process which may increase capital and operating
costs.

     In addition, these plants could experience mechanical difficulties, either
related or unrelated to elements of the Syntroleum Process.

     Many of our competitors have significantly more financial and other
resources than our company, and GTL technologies developed by our competitors
could become more commercially successful than our technology or render our
technology obsolete.

     The development of GTL technology is highly competitive, and other GTL
technologies could become more commercially successful than our technology. The
Syntroleum Process is based on chemistry that has been used by several companies
in synthetic fuel projects over the past 60 years. Our competitors include major
integrated oil companies that have developed or are developing competing GTL
technologies, including BP, Conoco, Exxon, Sasol (including through its
participation in a joint venture with Chevron) and Shell.  Each of these
companies has significantly more financial and other resources than us to spend
for research and development of their respective technologies and for funding
construction and operation of commercial-scale GTL plants. In addition to using
their own GTL technologies in competition with us, these competitors could also
offer to license their technology to others. In addition, several small
companies have developed, and are continuing to develop, competing GTL
technologies. The Department of Energy has also sponsored a number of research
programs relating to GTL technology that, in many cases, could potentially lower
the cost of competitive processes.

     As GTL technologies continue to be developed by our competitors, one or
more of our current technologies may become obsolete. Our ability to create and
maintain technological advantages is critical to our future success. As new
technologies develop, we may be placed at a competitive disadvantage, and
competitive pressures may force us to implement new technologies at a
substantial cost. We may not be able to successfully develop, or expend the
financial resources necessary to acquire new technology.

                                       23
<PAGE>

     Our ability to protect our intellectual property rights involves many
complexities and uncertainties, and commercialization of the Syntroleum Process
could give rise to claims that our technology infringes upon the rights of
others
 .
     Our success depends on our ability to protect our intellectual property
rights, which involves complex legal, scientific and factual questions and
uncertainties. We rely on a combination of patents, copyrights, trademarks,
trade secret law and contractual restrictions to protect our proprietary rights.
We cannot assure you that additional patents will be granted, and our existing
patents might not provide us with commercial benefit or might be infringed upon,
invalidated or circumvented by others. In addition, the availability of patents
in foreign markets, and the nature of any protection against competition that
may be afforded by those patents, are often difficult to predict and vary
significantly from country to country. We or our licensors may choose not to
seek, or may be unable to obtain, patent protection in a country that could
potentially be an important market for our GTL technology. The confidentiality
agreements that are designed to protect our trade secrets could be breached, and
we might not have adequate remedies for the breach. In addition, our trade
secrets and proprietary know-how might otherwise become known or be
independently discovered by others.

     Commercialization of the Syntroleum Process may give rise to claims that
our technologies infringe upon the patents or other proprietary rights of
others. Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought against
us, our partners or our licensees claiming damages and seeking an injunction
that would prevent us, our partners or our licensees from testing, marketing or
commercializing the affected technologies. Major energy

companies seeking to gain a competitive advantage may have an interest in
bringing one of these actions. If an infringement action was successful, in
addition to potential liability for damages, our partners, our licensees or we
could be required to obtain a license in order to continue to test, market or
commercialize the affected technologies. Any required license might not be made
available or, if available, might not be available on acceptable terms, and we
could be prevented entirely from testing, marketing or commercializing the
affected technology. We may have to expend substantial resources in litigation,
either in enforcing our patents, defending against the infringement claims of
others, or both. Many possible claimants, like the major energy companies that
have or may be developing proprietary GTL technologies competitive with the
Syntroleum Process, have significantly more resources to spend on litigation. We
can give no assurance that third parties will not claim infringement by us with
respect to past, present or future GTL technologies. In any potential
intellectual property dispute involving us, our licensees could also become the
target of litigation.

     We could have potential indemnification liabilities to licensees relating
to the operation of GTL plants based on the Syntroleum Process or intellectual
property disputes.

     Our license agreements require us to indemnify the licensee, subject to a
cap of 50% of the license fees received, against specified losses relating to,
among other things:

-     the use of patent rights and technical information relating to the
Syntroleum Process,

-     acts or omissions by us in connection with our preparation of process
design packages for plants, and

-     performance guarantees that may be provided by us.

     Our indemnification obligations could result in substantial expenses and
liabilities to us in the event that intellectual property rights claims are made
against us or our licensees, or GTL plants based on the Syntroleum Process fail
to operate as designed.

     If improvements to the Syntroleum Process are not commercially viable, the
design and construction of lower-cost GTL plants based on the Syntroleum Process
could be delayed or prevented.

     A number of improvements to the Syntroleum Process are in various early
stages of development. These improvements will require substantial additional
investment, development and testing prior to their commercialization. We might
not be successful in developing these improvements and, if developed, they may
not be capable of being utilized on a commercial basis. If improvements to the
Syntroleum Process currently under development do not become commercially viable
on a timely basis, the total potential market for GTL plants that could be built
by us and our partners and by our licensees could be significantly limited.

                                       24
<PAGE>

     For example, improvements to the heat integration of the Syntroleum Process
designed to lower capital and operating costs are currently under development.
These improvements may not occur because further integration of the gas turbine
into the process might not be technically feasible due to the operating
tolerances of the materials in the gas turbine. In addition, our horizontal
reactor, which is designed to have a low center of gravity for marine
applications, may not be capable of commercial application due to operational
difficulties that could limit the market for floating GTL plants.

     The economic application of our technology depends on favorable plant
operating conditions.

     The economic application of GTL technology depends on favorable plant
operating conditions. Among the operating conditions that impact plant economics
are the site location, infrastructure, weather conditions, the size of the
equipment, the quality of the natural gas feedstock, the type of plant products
and whether the natural gas converted by the plant is associated with oil
reserves. For example, if a plant were located in an area that requires the
construction of substantial infrastructure, plant economics would be adversely
affected. In addition, plants that are not designed to produce specialty
products or other high margin products and plants that are not used to convert
natural gas that is associated with oil reserves will be more dependent on
favorable natural gas and oil prices than plants designed for those uses and are
not expected to be cost-effective at price levels below the range of at least
$15 to $20 per barrel for oil.

     Industry rejection of our technology would make the construction of GTL
plants based on the Syntroleum Process more difficult or impossible and
adversely affect our ability to receive future license fees.

     As is typical in the case of a new and rapidly evolving technology, demand
and industry acceptance for our GTL technology is subject to a high level of
uncertainty. Failure by the industry to accept our technology would make our
construction of GTL plants more difficult or impossible and adversely affect our
ability to receive future license fees and to generate other revenue. Should a
high profile industry participant adopt the Syntroleum Process and fail to
achieve success or should any commercial GTL plant based on the Syntroleum
Process fail to achieve success, other industry participants' perception of the
Syntroleum Process could be adversely affected. In addition, some oil companies
may be motivated to seek to prevent industry acceptance of GTL technology based
on their belief that widespread adoption of GTL technology might negatively
impact their competitive position.

RISKS RELATING TO OUR BUSINESS

     We will need to obtain funds from additional financings or other sources
for the Sweetwater project and other activities, and if we do not receive these
funds we might need to delay or eliminate our expenditures, including those for
the Sweetwater project.

     We have expended and will continue to expend a substantial amount of funds
to continue the research and development of our technologies, to market the
Syntroleum Process and to design and construct GTL plants. We intend to finance
the Sweetwater plant primarily through non-recourse debt financing at the
project level, as well as equity financing, and plan to obtain additional funds
for our GTL plant projects primarily through a combination of equity and debt
project financing. We also intend to obtain additional funds through
collaborative or other arrangements with strategic partners and others and debt
and equity financing in the capital markets. Financing may not be available when
needed or on terms acceptable or favorable to us. Our letters of intent relating
to equity financing may not lead to definitive agreements. In addition,
definitive agreements with equity and debt participants in the Sweetwater
project and our other capital projects are expected to include conditions to
funding, many of which could be outside of our control. If adequate funds are
not available, we may be required to delay or to eliminate expenditures for the

                                       25
<PAGE>

Sweetwater project and our other capital projects, as well as expenditures for
research and development and other activities. We could also be forced to
license to third parties the rights to commercialize additional products or
technologies that we would otherwise seek to develop ourselves. If we obtain
additional funds by issuing equity securities, dilution to stockholders may
occur. In addition, preferred stock could be issued in the future without
stockholder approval and the terms of our preferred stock could include
dividend, liquidation, conversion, voting and other rights that are more
favorable than the rights of the holders of our common stock.

     Assuming the commercial success of the plants based on the Syntroleum
Process, we expect that license fees, catalyst sales and sales of specialty
products from GTL plants in which we own an interest will be a source of funds
for operations. However, we may not receive any of these revenues, and these
revenues may not be sufficient for capital expenditures or operations and may
not be received within the expected time frame. If we are unable to generate
funds from operations, our need to obtain funds through financing activities
will be increased.

     The construction of the Sweetwater plant and other GTL plants based on the
Syntroleum Process will be subject to the risks of delay and cost overruns
inherent in any large construction project.

     The construction of GTL plants based on the Syntroleum Process, including
the Sweetwater plant we are currently developing and plan to construct in
Western Australia, will be subject to the risks of delay or cost overruns
inherent in any large construction project resulting from numerous factors,
including the following:

-     shortages of equipment, materials or skilled labor,

-     unscheduled delays in the delivery of ordered materials and equipment,

-     engineering problems, including those relating to the commissioning of
      newly designed equipment,

-     work stoppages,

-     weather interference,

-     unanticipated cost increases, and

-     difficulty in obtaining necessary permits or approvals.


     We have incurred losses and anticipate continued losses.

     As of December 31, 2001, we had an accumulated deficit of $69 million. We
have not yet achieved profitability and expect to continue to incur net losses
until we recognize sufficient revenues from licensing activities, GTL plants or
other sources. Because we do not have an operating history upon which an
evaluation of our prospects can be based, our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by small
companies seeking to develop new and rapidly evolving technologies. To address
these risks, we must, among other things, respond to competitive factors,
continue to attract, retain and motivate qualified personnel and commercialize
and continue to upgrade our GTL technologies. We may not be successful in
addressing these risks. We can give no assurance that we will achieve or sustain
profitability.

     Our anticipated expense levels are based in part on our expectations as to
future operating activities and are not based on historical financial data. We
plan to increase our capital expenditures to fund the design and construction of
GTL plants, increase our operating expenses to fund greater levels of research
and development and increase our marketing and operational capabilities.
Increased revenues or cash flows may not subsequently follow these expenses.

     The economic application of GTL plants based on the Syntroleum Process
depends on favorable crude oil prices and other commodity prices.

     Our belief that the Syntroleum Process can be cost effective at GTL plants
with throughput levels from as low as 2,000 to over 100,000 barrels per day is
based on our assumption that oil prices in the range of at least $15 to $20 per
barrel will prevail. However, the markets for oil and natural gas have
historically been very volatile and are likely to continue to be very volatile
in the future. Although current crude oil prices are relatively high, during
1998 crude oil prices fell to historically low levels of below $10 per barrel
for a period of time and could return to low levels in the future.

     Because the synthetic crude oil, liquid fuels and specialty products that
GTL plants based on the Syntroleum Process are expected to produce will compete
in markets with oil and refined petroleum products, and because natural gas will
be used as the feedstock at these GTL plants, an increase in natural gas prices
relative to prices for oil and refined products, or a decrease in prices for oil

                                       26
<PAGE>

and refined products, could adversely affect the operating results of these
plants. Higher than anticipated costs for the catalysts and other materials used
in these plants could also adversely affect operating results. Factors that
could cause changes in the prices and availability of oil, natural gas and
refined products include:

-     the level of consumer product demand,

-     weather conditions,

-     domestic and foreign government regulation,

-     the actions of the Organization of Petroleum Exporting Countries,

-     political conditions in oil and natural gas producing countries,

-     the supply of foreign crude oil and natural gas,

-     the location of GTL plants relative to natural gas reserves and pipelines,

-     the capacities of pipelines,

-     fluctuations in seasonal demand, and

-     the price and availability of alternative fuels and overall economic
      conditions.

     We cannot predict the future markets and prices for oil, natural gas,
refined products or other materials used in the Syntroleum Process.

     GTL plants will depend on the availability of natural gas at economic
prices, and alternative uses of
natural gas could be preferred in many circumstances.

     GTL plants will depend on the availability of natural gas at economic
prices. The market for natural gas is highly competitive in many areas of the
world, and in many circumstances, the sale of natural gas for use as a feedstock
in a GTL plant will not be the highest value market for the owner of the natural
gas. The cryogenic conversion of natural gas to liquefied natural gas may
compete with our GTL plants for use of natural gas as feedstocks in many
locations. Local commercial, residential and industrial consumer markets, power
generation, ammonia, methanol and petrochemicals are also alternative markets
for natural gas. Unlike us, many of our competitors also produce or have access
to large volumes of natural gas, which may be used in connection with their GTL
operations. The availability of natural gas at economic prices for use as a
feedstock for GTL plants may also depend on the production costs for the gas and
whether natural gas pipelines are located in the areas where these plants are
located. New pipelines may be built in, or existing pipelines may be expanded
into, areas where GTL plants are built, and this may affect the operating
margins of these plants as other markets compete for the available natural gas.
The United States and Western Europe have well-developed natural gas markets. In
these markets, the relationship between natural gas prices and liquid
hydrocarbon prices would likely make investments in GTL plants that produce
fuels uneconomic based upon current natural gas and refined product prices, as
well as other market, environmental and regulatory conditions. Other areas
around the world that have developed local markets for natural gas may also have
higher valued uses for natural gas than as feedstocks for GTL plants. In
addition, the commercialization of GTL technologies may have an adverse effect
on the availability of natural gas at economic prices.

     Our receipt of license fees depends on substantial efforts by our
licensees, and our licensees could choose not to construct a GTL plant based on
the Syntroleum Process or to pursue alternative GTL technologies.

     Our licensees will control whether any plant site licenses are issued and,
as a result, whether any additional license fees are due under our license
agreements. Licensees may need to undertake substantial activities and
investments before any plant site license is issued and license fees are due.
These activities may include performing feasibility studies, obtaining

                                       27
<PAGE>

regulatory approvals and permits, obtaining preliminary cost estimates and final
design and engineering for the plant, obtaining a sufficient dedicated supply of
natural gas, obtaining adequate commitments for the purchase of the plant's
products and obtaining the financing for construction of the plant. A licensee
will control the amount and timing of resources devoted to these activities.
Whether licensees are willing to expend the resources necessary to construct GTL
plants will depend on a variety of factors outside our control, including the
prevailing view of prices for crude oil, natural gas and refined products. In
addition, our license agreements may be terminated by the licensee, with or
without cause, upon 90 days' notice to us. If we do not receive payments under
our license agreements, we may not have sufficient resources to implement our
business strategy. Our licensees are not restricted from pursuing alternative
GTL technologies on their own or in collaboration with others, including our
competitors.

     Our future plans could be harmed if we are unable to attract or retain key
personnel.

     Our success substantially depends on the performance of our executive
officers, including Kenneth L. Agee (our founder, Chief Executive Officer and
Chairman of the Board and inventor with respect to many of our patents and
patent applications) and Mark A. Agee (our President and Chief Operating
Officer). Given the technological nature of our business, we also depend on our
scientific and technical personnel. Our efforts to develop and commercialize our
technology have placed a significant strain on our scientific and technical
personnel, as well as our operational and administrative resources. Our ability
to implement our business strategy may be constrained, and the timing of
implementation may be impacted, if we are unable to attract and retain
sufficient personnel. At March 1, 2001, we had 98 full-time employees. Except
for a $500,000 life insurance policy held by us on the life of Kenneth L. Agee,
we do not maintain "key person" life insurance policies on any of our employees.

     We depend on strategic relationships with manufacturing and engineering
companies, and failure by these companies to provide necessary components or
services could negatively impact our business.

     We intend to, and believe our licensees will, utilize third party component
manufacturers in the design and construction of GTL plants based on the
Syntroleum Process. If any third party manufacturer is unable to acquire raw
materials or to provide components of GTL plants based on the Syntroleum Process
in commercial quantities in a timely manner and within specifications, we or our
licensees could experience material delays, or construction plans could be
canceled, while alternative suppliers or manufacturers are identified and
prepare for production. We

have no experience in manufacturing and do not have any manufacturing
facilities. Consequently, we will depend on third parties to manufacture
components of GTL plants based on the Syntroleum Process. We have conducted
development activities with third parties relating to our proprietary catalysts
and turbines that may be used in the Syntroleum Process, and other manufacturing
companies may not have the same expertise as these companies.
We also intend to utilize third parties to provide engineering services in
connection with our efforts to commercialize the Syntroleum Process. If these
engineering firms are unable to provide requisite services or performance
guarantees, we or our licensees could experience material delays, or
construction plans could be canceled, while alternative engineering firms are
identified and become familiar with the Syntroleum Process. We have no
experience in providing engineering services and have a limited engineering
staff. Consequently, we will depend on third parties to provide necessary
engineering services, and these firms may be asked by licensees or financial
participants in plants to provide performance guarantees in connection with the
design and construction of GTL plants based on the Syntroleum Process.

     Our operating results may be volatile due to a variety of factors and are
not a meaningful indicator of future performance.

     We expect to experience significant fluctuations in future annual and
quarterly operating results because of the unpredictability of many factors that
impact our business. These factors include:

-     timing of any construction by us or our licensees of GTL plants,

-     demand for licenses of the Syntroleum Process and receipt and revenue
recognition of license fees,

-     oil and gas prices,

-     timing and amount of research and development expenditures,

-     demand for specialty products,

                                       28
<PAGE>

-     introduction or enhancement of GTL technologies by us and our competitors,

-     market acceptance of new technologies, and

-     general economic conditions.

     As a result, we believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as any indication of
future performance. Due to all of the foregoing factors, it may be that in some
future year or quarter our operating results will be below the expectations of
public market analysts and investors. In that event, the price of our common
stock would likely be materially adversely affected.

     We are subject to extensive laws relating to the protection of the
environment, and these laws may increase the cost of designing, constructing and
operating our GTL plants.

     We are subject to extensive laws and regulations relating to the protection
of the environment. Violators of these laws and regulations may be subject to
substantial fines, criminal sanctions or third party lawsuits and may be
required to install costly pollution control equipment or, in some extreme
cases, curtail operations. Our GTL plants will generally be required to obtain
permits under applicable environmental laws and various permits for industrial
siting and construction. Compliance with environmental laws and regulations, and
any requisite permits, may increase the costs of designing, constructing and
operating our GTL plants. We may also face exposure to actual or potential
claims and lawsuits involving environmental matters with respect to our current
real estate inventory as well as previously owned real estate.

     We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations.

     We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations. These risks include changes in domestic and foreign taxation,
currency exchange risks, labor disputes and uncertain political and economic
environments as well as risk of war, civil disturbances or other events that
could limit or disrupt production and markets or result in the deprivation of
contract rights or the taking of property by nationalization or appropriation
without fair compensation. International operations and investments may also be
adversely affected by laws and policies of the United States affecting foreign
trade, investment and taxation, which could affect the conduct or profitability
of these operations.

     Sufficient markets for the synthetic products of the Syntroleum Process or
products that utilize these synthetic products, including fuel cells, may never
develop or may take longer to develop than we anticipate.

     Sufficient markets may never develop for the synthetic products of the
Syntroleum Process, or may develop more slowly than we anticipate. The
development of sufficient markets for the synthetic products of the Syntroleum
Process may be affected by many factors, some of which are out of our control,
including:

-     the cost competitiveness of the synthetic products of the Syntroleum
Process,

-     consumer reluctance to try a new product,

-     environmental, safety and regulatory requirements, and

-     the emergence of more competitive products.

     In addition, a new market may fail to develop for products that utilize our
synthetic products. For example, the establishment of a market for the use of
these products as fuel for fuel cells is uncertain, in part because fuel cells
represent an emerging market, and we do not know whether distributors will want
to sell them or if end-users will want to use them.

     If sufficient markets fail to develop or develop more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our technology and may never achieve profitability.

                                       29
<PAGE>

ITEM 2.     PROPERTIES

     We own and operate a nominal two barrel-per-day pilot plant located on two
leased acres in Tulsa, Oklahoma. We also lease 4,500 square feet of laboratory
and office space and approximately 37,000 square feet of executive office space
in Tulsa, Oklahoma.  In addition, we own a 16,500 square foot laboratory
facility located on  approximately 100 acres of property.

     Our real estate assets are described under "Item 1.  Business-Management
and Disposition of Real Estate and Miscellaneous Assets."

ITEM 3.     LEGAL PROCEEDINGS

     We are not a party to, nor are any of our properties the subject of, any
pending legal proceedings that, in the opinion of management, are expected to
have a material adverse effect on our consolidated results of operations or
financial position.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information concerning our executive
officers as of March 1, 2001. Unless otherwise indicated, each of our executive
officers has served in the indicated positions since the closing of the merger
of Syntroleum Corporation and SLH Corporation on August 7, 1998 and served in
the same position with Syntroleum Corporation before the merger. References to
positions held with our company before the date of the merger refer to positions
held with our predecessor company, Syntroleum Corporation, an Oklahoma
corporation.

<TABLE>
<CAPTION>

    Name             Age                      Position
    ----             ---                      --------
<S>                 <C>   <C>

Kenneth L. Agee      44    Chief Executive Officer and Chairman of the Board
Mark A. Agee         48    President, Chief Operating Officer and Director
Charles A. Bayens    62    Vice President of Engineering
Carla S. Covey       28    Controller
Eric Grimshaw        48    Vice President, General Counsel and Secretary
Paul F. Schubert     45    Vice President of Research and Development
Michael L. Stewart   46    Vice President of Information Technology
Randall M. Thompson  42    Vice President and Chief Financial Officer
Larry J. Weick.      52    Vice President of Licensing and Business Development

</TABLE>


     Kenneth L. Agee is our Chief Executive Officer and Chairman of the Board.
Mr. Kenneth L. Agee founded our company in 1984 and initially served as
President and a director. He became Chief Executive Officer in February 1996 and
Chairman of the Board in November 1995. He is a graduate of Oklahoma State
University with a degree in Chemical Engineering and is a licensed Professional
Engineer in the State of Oklahoma. In addition, he has over 15 years of
experience in the energy industry and is listed as Inventor on several United
States and foreign patents and several pending patent applications, all of which
have been assigned to us by Mr. Agee.

     Mark A. Agee is our President, Chief Operating Officer and a director. Mr.
Mark A. Agee joined our company in 1994 as Vice President of Finance and became
President and Chief Operating Officer in February 1996. He has served as a
director since March 1985. From 1989 to May 1993, he served as President, Chief
Executive Officer and Director of Convergent Communications, a company which he
founded in 1989 and sold in 1993. From 1981 to 1989, he served as President,
Chief Executive Officer and a Director of XETA Corp., a computer company which
he founded in 1981 and which became public in 1987. He holds a Bachelor's degree
in Chemical Engineering from the University of Tulsa and is a licensed
Professional Engineer in the State of Oklahoma.

     Charles A. Bayens is our Vice President of Engineering. Mr. Bayens joined
our company in July 1997 as Business Development Manager and became Vice

                                       30
<PAGE>

President of Engineering in December 1997. Prior to joining our company, Mr.
Bayens was with Shell Oil Company from 1967 to 1997 in various technical and
business assignments. From 1991 to 1997, he was President of Shell Synthetic
Fuels, Inc., where he managed the commercialization of Shell's suite of synfuels
technologies. Concurrently, from 1991 to 1994, he was also Manager, Technology
Licensing for Shell. Mr. Bayens holds a Ph.D. in Chemical Engineering from Johns
Hopkins University.

     Carla S. Covey is our Controller. Ms. Covey became our Director of
Accounting in June 1997. Prior to joining our company, Ms. Covey served as
Accounting Manager/Human Resource Manager and Manager, Facility Operations for
AGC Manufacturing Services, Inc., in Tulsa, Oklahoma from 1995 to 1997. Ms.
Covey also served as Assistant Director of Human Resources for the Adam's Mark
Hotel in Tulsa, Oklahoma from 1994 to 1995. Ms. Covey received her B.A. degree
in Business Administration from Drury University and her M.S. degree in
Management from Southern Nazarene University. Ms. Covey is a certified public
accountant.

     Eric Grimshaw is our Vice President, General Counsel and Secretary. Prior
to joining our company in June 1997, Mr. Grimshaw was a partner with the law
firm of Pray, Walker, Jackman, Williamson & Marlar. Mr. Grimshaw received a B.A.
degree from the University of Colorado and received his law degree from the
University of Tulsa.

     Paul F. Schubert is our Vice President of Research and Development. Dr.
Schubert joined us as Research Project Manager in May 1998. From 1996 to 1998,
Dr. Schubert was Vice President of Monitor Labs, Denver, Colorado, where he was
responsible for the research, development and marketing of catalytic and
laser-based air emissions monitoring devices. From 1990 until 1996, Dr. Schubert
served in a variety of roles with Catalytica, Inc. (Mountain View, California),
a company engaged in research and development of catalytic processes. In his

last few years at Catalytica, he served as Vice President of their Advanced
Sensor Devices Division, which was sold to Monitor Labs in 1996. Prior to
joining Catalytica, Dr. Schubert worked with Phillips Petroleum and Englehard
Corporation in research, development and manufacturing of catalysts for the
petrochemical industry. Dr. Schubert received a B.S. with High Honors from the
University of Arkansas and a Ph.D. in Inorganic Chemistry from the University of
Illinois at Urbana-Champaign. He is an inventor or co-inventor of 13 U.S.
patents, and has authored over two dozen technical publications.

     Michael L. Stewart is our Vice President of Information Systems and has
served in that position since November 1998. Mr. Stewart joined our company in
May 1997 as information technology manager, bringing over 23 years of computer
and information systems related experience. From 1993 until joining us, he was a
management consultant involved in data processing, systems operation, planning
and organization. Earlier, he held the positions of Vice President--Management
Information Services for Convergent Communications, Inc., and database design
specialist for Continental Savings and Loan.

     Randall M. Thompson is our Vice President and Chief Financial Officer. Mr.
Thompson joined our company in January 1997. From January 1994 through December
1996, he held various financial and marketing positions with Tenneco Energy
Corporation, as Vice President of Strategic Planning, Marketing and Business
Development. From 1983 through 1994, Mr. Thompson was employed by Atlantic
Richfield Company and held financial management positions. Mr. Thompson holds a
B.A. in Economics from the University of Colorado and an M.B.A. from The Wharton
School at the University of Pennsylvania.

     Larry J. Weick is our Vice President of Licensing and Business Development.
Mr. Weick joined our company in 1996. From 1971 to 1982, he held positions in
engineering, planning and project development in the natural gas and electric
utility industry. From 1982 to 1994, he held several finance, planning and
business development positions with Atlantic Richfield Company. From 1994 to
1996, Mr. Weick served as a consultant to us. He holds a B.S. in Electrical
Engineering from the University of Nebraska at Lincoln and an M.S. in
Engineering-Economics from Stanford University. Mr. Weick is also a Licensed
Professional Engineer in both Nebraska and Texas.

     There are no family relations, of first cousin or closer, among our
executive officers, by blood, marriage or adoption, except that Mr. Kenneth L.
Agee and Mr. Mark A. Agee are brothers.

                                       31
<PAGE>

                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

     Stock Prices.  Our common stock is traded on the National Market System of
the Nasdaq Stock Market under the symbol "SYNM."  The table below reflects the
high and low sales prices for the common stock for each quarter during 1999 and
2000.

<TABLE>
<CAPTION>
                               SALES PRICE
                               -----------
                               HIGH   LOW
                               ----   ---
YEAR ENDED DECEMBER 31, 1999:

<S>                           <C>    <C>

First Quarter                  10.13  5.50
Second Quarter                 8.94   5.88
Third Quarter                  10.00  6.50
Fourth Quarter                 10.00  6.25

YEAR ENDED DECEMBER 31, 2000:
First Quarter                  26.38  7.13
Second Quarter                 26.50  16.38
Third Quarter                  20.81  12.88
Fourth Quarter                 20.81  11.81

</TABLE>


     Record Holders.  As of March 1, 2001, we had approximately 1491 record
holders of our common stock  (including brokerage firms and other nominees).

     Dividends.  Cash dividends have not been paid since inception. We currently
intend to retain any earnings for the future operation and development of our
business and do not currently anticipate paying any dividends in the foreseeable
future.  Any future determination as to dividend policy will be made, subject to
Delaware law, in the discretion of our board of directors and will depend on a
number of factors, including our future earnings, capital requirements,
financial condition and business prospects and other factors that our board of
directors may deem relevant.  Although we are not currently a party to any
agreement that restricts dividend payments, future dividends may be restricted
by our then-existing financing arrangements.  See "Item 7.  Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."

     Our stock price may continue to be volatile and could decline in the
future.  Historically, the market price of our common stock has been very
volatile. The trading price of our common stock is expected to continue to be
subject to substantial volatility in response to numerous factors, including
publicity regarding actual or potential results with respect to development of
the Syntroleum Process and design, construction and commercial operation of
plants using our process, announcements of technological innovations by others
with competing GTL processes, developments concerning intellectual property
rights, including claims of infringement, annual and quarterly variances in
operating results, changes in energy prices, competition, changes in financial
estimates by securities analysts, any differences in actual results and results
expected by investors and analysts, investor perception of our favorable or
unfavorable prospects and other events or factors. In addition, the stock market
has experienced and continues to experience significant price and volume
volatility that has affected the market price of equity securities of many
companies. This volatility has often been unrelated to the operating performance
of those companies. These broad market fluctuations may adversely affect the
market price of our common stock. There is no guarantee that an active public
market for our common stock will be sustained.

     Future sales of our common stock could adversely affect our stock price.
Substantial sales of our common stock in the public market, or the perception by
the market that those sales could occur, could lower our stock price or make it
difficult for us to raise additional equity capital in the future. These sales
could include sales of shares of our common stock by our directors and officers,
who beneficially owned approximately 36% of the outstanding shares of our common
stock as of March 1, 2001. We cannot predict if future sales of our common
stock, or the availability of our common stock for sale, will harm the market
price for our common stock or our ability to raise capital by offering equity
securities.

                                       32
<PAGE>

REGISTRATION STATEMENT

     We filed a Registration Statement on Form S-3 (Registration No. 333-32968),
as amended (the "Registration Statement"), in connection with the registration
of shares of our common stock with an aggregate offering price of up to
$120,000,000.  The Securities and Exchange Commission declared the Registration
Statement effective on April 25, 2000.  As described in a prospectus supplement
dated June 29, 2000, an offering commended on June 29, 2000 pursuant to the
Registration Statement, and resulted in (i) the sale by us of 5,250,000 shares
of common stock on July 6, 2000 and (ii) the sale by us of 400,000 shares of
common stock on July 19, 2000 pursuant to the exercise of the underwriters'
over-allotment option.

     The net proceeds to us from the offering were approximately $92 million. To
date, we have used approximately $13 million in such net proceeds for the
development of our Sweetwater project.  The remaining net proceeds from the
offering are currently invested in short-term cash and cash equivalents.  None
of such payments were direct or indirect payments to our directors or officers
or their associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates.

ITEM 6.     SELECTED FINANCIAL DATA

     The following selected financial information should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the related
notes thereto included elsewhere in this Annual Report on Form 10-K.  The
results of operations of SLH Corporation have been included in our consolidated
statement of operations following the August 7, 1998 effective date of the
merger of Syntroleum Corporation and SLH Corporation.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,

                                           2000        1999       1998      1997      1996
                                         ---------   -------    --------  -------  ---------
STATEMENT OF OPERATIONS DATA:


<S>                                      <C>        <C>        <C>        <C>       <C>
 Joint development revenue               $  1,166   $  1,986   $  1,779   $ 2,006   $   616
 Real estate sales revenue                  4,758      1,219      2,416         -         -
 Licensing revenue                          2,000          -          -         -         -
 Other revenue                                 84        650        284         1         -
                                         ---------  ---------  ---------  --------  --------
 Total revenue                              8,008      3,855      4,479     2,007       616
                                         ---------  ---------  ---------  --------  --------
 Costs and expenses:
   Cost of real estate sold                 3,646        824      2,387         -         -
   Real estate operating expenses             250        781        267         -         -
   Pilot plant, engineering
          and research and development     18,520     10,863      5,693     3,554     1,120
   Catalyst services                            -          -          -     4,800         -
   General and administrative              13,118     10,409      9,151     3,618     1,421
                                         ---------  ---------  ---------  --------  --------
           Total operating expenses        35,534     22,877     17,498    11,972     2,541
                                         ---------  ---------  ---------  --------  --------
 Operating income (loss)                  (27,526)   (19,022)   (13,019)   (9,965)   (1,925)

 Investment, interest and other
           income (expense)                 2,358      1,864      1,308       353       (12)
                                         ---------  ---------  ---------  --------  --------
Net income  (loss)                       $(25,168)  $(17,158)  $(11,711)  $(9,612)  $(1,937)
                                         =========  =========  =========  ========  ========
Net income (loss) per share-
           basic and diluted (1)         $  (0.84)  $  (0.64)  $  (0.46)  $ (0.40)  $ (0.08)
                                         =========  =========  =========  ========  ========

</TABLE>


(1)     Adjusted  to  reflect  the  exchange  ratio for the merger of Syntroleum
Corporation  and  SLH  Corporation of 1.2899 shares of our common stock for each
share  of  our  predecessor  company's  common stock.  See "Item 7. Management's
Discussion  and  Analysis  of  Financial  Condition  and Results of Operations."

                                       33
<PAGE>

<TABLE>
<CAPTION>
                                           AS OF DECEMBER 31,


                               2000     1999      1998    1997       1996
                              ------- --------  -------  -------   -------
BALANCE SHEET DATA:

<S>                          <C>       <C>      <C>      <C>       <C>
Working capital              $ 81,722  $22,798  $37,476  $ 9,846   $  601
Property and equipment, net    31,274    6,442    3,210    1,245      521
Total assets                  139,878   39,591   50,400   12,091    1,552
Deferred revenue               35,680   11,000   11,000   11,000        -
Stockholders' equity           94,748   24,832   35,962   (1,242)     266

</TABLE>

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

OVERVIEW

     In August 1998, Syntroleum Corporation, an Oklahoma corporation, merged
into SLH Corporation, a Kansas corporation. SLH Corporation was the surviving
corporation and changed its name to Syntroleum Corporation in connection with
the merger. This merger was accounted for as a reverse acquisition, with
Syntroleum Corporation, an Oklahoma corporation, being treated as the accounting
acquirer. The results of operations of SLH Corporation have been included in our
financial results since completion of the merger.

     In June 1999, we completed a reincorporation as a Delaware corporation. In
the reincorporation, our predecessor, Syntroleum Corporation, a Kansas
corporation, merged into a wholly owned Delaware subsidiary, and each share of
our predecessor's common stock was converted into one share of the Delaware
corporation's common stock. The Delaware corporation was the surviving
corporation in the merger. The reincorporation merger has been accounted for as
a combination of entities under common control using the historical cost basis
of the combining companies as if it were a pooling-of-interests.

     Because we are incurring costs with respect to developing and
commercializing the Syntroleum Process and do not anticipate recognizing any
significant revenues from licensing our technology or from production from a
specialty plant in the near future, we expect to continue to operate at a loss
unless and until sufficient revenues are recognized from licensing activities,
GTL plants or real estate sales.

OPERATING REVENUES

     General.  During the periods discussed below, our revenues were primarily
generated from the following:

-   sales of real estate holdings owned by SLH Corporation prior to the merger
    of Syntroleum Corporation and SLH Corporation,
-   reimbursement for research and development activities associated with the
    Syntroleum Process, and
-   other sources, including rent generated by real estate holdings owned by
    SLH prior to the merger.

     Because our real estate portfolio has been substantially sold, we expect to
receive lower levels of revenues from these sources in following periods. In the
future, we expect to receive revenue relating to the Syntroleum Process from
four principal sources:

-   licensing,
-   catalyst sales,
-   sales of products from GTL plants in which we own an equity interest, and
-   revenues from research and development activities carried out with
    industry partners.

     Until the commencement of commercial operation of GTL plants in which we
own an interest, we expect that cash flow relating to the Syntroleum Process
will consist primarily of license fee deposits, site license fees and revenues
associated with joint development activities. We will not receive any cash flow
from GTL plants in which we own an equity interest until the first of these
plants is constructed. Our future operating revenues will depend on the
successful commercial construction and operation of GTL plants based on the
Syntroleum Process, the success of competing GTL technologies and other
competing uses for natural gas. We expect our results of operations and cash
flows to be affected by changing crude oil, fuel and specialty product prices.
If the price of these products increases (decreases), there could be a
corresponding increase (decrease) in operating revenues.

                                       34
<PAGE>


     License Revenues.  The revenue earned from licensing the Syntroleum Process
is expected to be generated through four types of contracts: master license
agreements, volume license agreements, regional license agreements and site
license agreements. Master, volume and regional license agreements provide the
licensee with the right to enter into site license agreements for individual GTL
plants. A master license agreement grants broad geographic and volume rights,
while volume license agreements limit the total production capacity of all GTL
plants constructed under the agreement to specified amounts, and regional
license agreements limit the geographical rights of the licensee. Master, volume
and regional license agreements require an up-front cash deposit that may offset
or partially offset license fees for future plants payable under site licenses.
We have acquired technologies or commitments of funds for joint development
activities, services or other consideration in lieu of the initial cash deposit
in cases where we believed the technologies or commitments had a greater value.

     Our site license agreements require fees to be paid in increments when
milestones during the plant design and construction process are achieved. The
amount of the license fee under our existing master and volume license
agreements is determined pursuant to a formula based on the present value of the
product of: (1) the yearly maximum design capacity of the plant, (2) an assumed
life of the plant and (3) our per barrel rate, which currently is approximately
$.50 per barrel of daily capacity, regardless of plant capacity. Our licensee
fees may change from time to time based on the size of the plant, improvements
that reduce plant capital cost and competitive market conditions. Our existing
master and volume license agreements allow for the adjustment of fees for new
site licenses under certain circumstances. Our accounting policy is to defer all
up-front deposits under master, volume and regional license agreements and
license fees under site license agreements and recognize 50% of the deposits and
fees as revenue in the period in which the engineering process design package
for a plant licensed under the agreement is delivered and recognize the other
50% of the deposits and fees when the plant has passed the performance tests.
The amount of license revenue we earn will be dependent on the construction of
plants by licensees, as well as the number of licenses we sell in the future.

     Catalyst Revenues.  We expect to earn revenue from the sale of our
proprietary catalysts to our licensees. Our license agreements require our
catalyst to be used in the initial fill for the licensee to receive our process
guarantee.  After the initial fill, the licensee may use other catalyst vendors
if appropriate catalysts are available. The price for catalysts purchased from
us pursuant to license agreements is equal to our cost plus a specified margin.
We will receive revenue from catalyst sales if and when our licensees purchase
catalysts. We expect that catalysts will need to be replaced every three to five
years.

     GTL Plant Revenues.  We intend to develop several GTL plants and to retain
significant equity interests in these plants. These plants will enable us to
gain experience with the commercial operation of the Syntroleum Process and, if
successful, are expected to provide ongoing revenues. The anticipated products
of these plants (i.e., fuels, synthetic lube base oils, process oils, waxes,
synthetic drilling fluid and liquid normal paraffins) have historically been
sold at premium prices and are expected to result in relatively high margins for
these plants. We anticipate forming several joint ventures with energy industry
and financial partners in order to finance and operate these plants.  We
anticipate that our GTL plants will include partners who have low-cost gas
reserves in strategic locations and/or have distribution networks in place for
the specialty products to be made in each plant.

     Joint Development Revenues.  We continually conduct research and
development activities in order to reduce the capital and operating costs of GTL
plants based on the Syntroleum Process. We conduct our research and development
activities primarily through two initiatives: (1) independent development
utilizing our own resources and (2) formal joint development arrangements with
our licensees and others. Through these joint development agreements, we may
receive revenue as reimbursement for specified portions of our research and
development expenses. Under some of these agreements, the joint development
partner may receive credits against future license fees for monies expended on
joint research and development.

     Real Estate Sales Revenues.  As of December 31, 2000, our real estate
inventory consisted of land in Houston, Texas comprised of 281 acres of
undeveloped land and 108 lots known as the "Houston Project."   This real estate
inventory was owned by SLH Corporation prior to the merger of Syntroleum
Corporation and SLH Corporation and reflects the remaining assets of a real
estate development business that was conducted by SLH's former parent
corporation. Our total real estate inventory had an aggregate carrying value at
December 31, 2000 of approximately $3.3 million. The Houston Project is being
developed for commercial and residential use and ultimate sale.  The timing of
real estate sales will create variances in period-to-period earnings
recognition. We do not intend to acquire additional real estate holdings for
development and/or sale outside our core business interests, and real estate
sales revenues should decrease as the current real estate inventory is
liquidated.

                                       35
<PAGE>


     During 2000, we sold the remaining tract of land in Corinth, Texas for
$36,000.  We also sold 82 lots from the Houston Project for $1,663,000.

     In February 2000, the Company sold its parking garage in Reno, Nevada to
Fitzgeralds Reno, Inc.  The sale price of $3 million was paid by $750,000 in
cash and the balance in the form of a promissory note in the principal amount of
$2,250,000 together with the assumption of the lease payments due under the
ground lease.  The note bears interest at the rate of 10% per annum and is
payable in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years.  The note is
secured by a deed of trust covering the leasehold estate created by the ground
lease on which the garage is located, as well as the parking garage and an
assignment of leases.  In December 2000, Fitzgeralds Reno, Inc., a Nevada
corporation ("FRI") doing business as Fitzgeralds Hotel & Casino Reno, along
with several affiliates, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court, District of Nevada.  Fitzgeralds continues to make the monthly payments
due on the note and the ground lease and has informed the Company that it
intends to assume these obligations and continue making these payments until
Fitzgeralds is able to sell the parking garage.  The Company's deed of trust
contains a "due on sale" provision until the note is paid.  After the note is
paid, the Company's deed of trust remains in effect to secure Fitzgeralds'
performance of its obligations under the ground lease and provides that any
assignee of Fitzgeralds in the event of the sale of the parking garage must meet
certain net worth requirements in order for Fitzgeralds to assign the ground
lease.

OPERATING EXPENSES

     Our operating expenses historically have consisted primarily of pilot
plant, engineering and research and development expenses and general and
administrative expenses, which include costs associated with general corporate
overhead, compensation expense, legal and accounting expense and expenses
associated with other related administrative functions. Our policy is to expense
pilot plant, engineering and research and development costs as incurred. All of
these research and development expenses are associated with our development of
the Syntroleum Process. We have also recognized depreciation and amortization
expense primarily related to office and computer equipment and patents.  Our
operating expenses have also included costs of real estate sold and real estate
operating expense. Our general and administrative expenses have increased
substantially, and we have expanded our research and development, engineering
and commercial staffing levels. These expenses are expected to continue to
increase. We also expect to continue to incur pilot plant, engineering and
research and development expenses as we continue to develop and improve our GTL
technology.

     We expect to incur significant expenses in connection with the start-up of
our GTL plants. For example, we expect that our expenses will increase at the
time of commencement of construction of GTL plants in which we own an interest.
Upon the commencement of commercial operation of GTL plants in which we own an
equity interest, we will incur cost of sales expenses relating primarily to the
cost of natural gas feedstocks for our specialty plants and operating expenses
relating to these plants, including labor, supplies and maintenance. Due to the
substantial capital expenditures associated with the construction of GTL plants,
we expect to incur significant depreciation and amortization expense in the
future.  Our policy is to expense costs associated with the development of GTL
plants until financial close unless they have future economic value for future
projects.  Engineering costs are capitalized once an engineering contract
leading to a firm lump sum price has been signed.

RESULTS OF OPERATIONS

OVERVIEW

     During 2000, we continued our efforts to commercialize our GTL technology
on several fronts. We completed our joint participation with ARCO in a 70 barrel
per day demonstration GTL plant located at ARCO's Cherry Point refinery in the
State of Washington. The plant began operating in July 1999 and operated
successfully until it was shut down at the completion of testing shortly after
June 30, 2000.  ARCO funded the construction and operation of this plant under
our joint development agreement.  Plant operations exceeded our expectations and
successfully demonstrated a number of key aspects of our proprietary autothermal
reformer and moving bed reactor designs and related catalyst performance.  The
data and experience generated from our participation in plant operations will be
useful in our efforts to apply these reactor designs on a commercial basis both
for fuels and specialty product plants.   We are currently conducting
engineering studies with others for commercial-scale plants using these reactor
designs.

                                       36
<PAGE>


     We continued our activities to confirm catalyst performance and reactor
designs for our proposed Sweetwater plant. These activities included operation
of new pilot scale Fischer-Tropsch reactors at our pilot plant in Tulsa,
Oklahoma. Operation of these reactors allowed us to complete a battery of
confirmation tests and detailed engineering of our proposed Sweetwater plant
during the year 2000. To date our pilot plant operations have met or exceeded
our Sweetwater plant design targets. Pilot plant testing activities with respect
to the Sweetwater plant are continuing. We also substantially completed
construction of a product upgrading pilot plant located at our technology center
which is currently undergoing pre-commissioning for start up and operation.

     We also continued our efforts to advance numerous other aspects of the
Sweetwater project, including completion of our license and loan agreements with
the Commonwealth of Australia and execution of a letters of intent with Enron
and Ivanhoe Energy relating to their participation as equity partners in the
Sweetwater project.  Each of these transactions is discussed in more detail
below under "Liquidity and Capital Resources - Initial Specialty Product GTL
Plant."  In addition, we engaged the investment banking firm of Merrill Lynch,
Pierce, Fenner & Smith Incorporated to advise us as we seek to raise the
necessary debt capital to construct the Sweetwater project.

     In September 2000, we were selected by the U.S. Department of Energy to
participate in one of eight teams of companies that have been identified as
potential participants in the DOE's program to help pioneer a new generation of
ultra-clean transportation fuels and tailpipe emission controls.  Our team will
use our GTL technology to demonstrate the effective production, testing,
adaptation and use of ultra-clean synthetic fuels that can be delivered by
existing fuel infrastructures. The DOE has not yet selected the final
participants, and we can give no assurance that our team will be selected for a
DOE grant for this project.  In addition, the terms and conditions of our
participation have not yet been finalized.

     We continued to expand our technology partners during 2000, as General
Motors and Volkswagen entered into fuel testing agreements with us.  In
addition, fuel cell developer FuelCell Energy entered into a Fuel Marketing and
Offtake Agreement with us.

     During 2000, we entered into a volume license agreement with Ivanhoe and
later amended the agreement to a full master license agreement.  The license
agreement, as amended, no longer contains limitations on the volume of synthetic
hydrocarbons which may be produced by Ivanhoe under the agreement and enables
Ivanhoe to pursue an unlimited number of gas-to-liquids projects around the
world.

     During April of 2000, we recognized $2 million in license revenue
reflecting funds previously received as payment for an option granted to a
licensee to acquire the right to use the Syntroleum Process in certain
additional geographic areas not included in the original licensed territory.
Revenue received upon the grant of this option was deferred until the earlier of
the licensee exercising the option or the expiration of the option.  The option
lapsed in April 2000, resulting in the recognition of the related revenue.

2000 COMPARED TO 1999

     Joint Development Revenue.  Revenues from our joint research and
development and pilot plant operations were $1,166,000 in 2000, down $820,000
from 1999 when they were $1,986,000.  The decrease was primarily due to reduced
funding received under our joint development agreement with ARCO relating to the
construction of the pilot plant at ARCO's Cherry Point refinery in Washington.
Construction of this pilot plant was completed in 1999 and we continued to
receive funding for the operation of this pilot plant through June 2000. Testing
was completed and the plant was shut down in early July 2000.

     Real Estate Sales Revenue.  Revenues from the sale of real estate were
$4,758,000 in 2000, up $3,539,000 from $1,219,000 in 1999.  The increase was due
to the sale of our Reno parking garage to Fitzgeralds Reno, Inc. during February
2000 and the sale of 82 lots from our Houston Project during 2000, compared to
our sale of the Santa Rosa land in Kansas City and the sale of 38 lots from our
Houston project during 1999.  Real estate sales revenues should decrease as the
remaining real estate inventory is sold.

     Licensing Revenue.  Revenues from license activities were $2,000,000 in
2000 compared to zero in 1999.  This increase was a result of our recognition of
$2 million in previously deferred license revenue as a result of the expiration
of an option held by a licensee to expand the licensee's licensed territory.

                                       37
<PAGE>


     Other Revenue.  Other revenues were $84,000 in 2000, down $566,000 from
1999 when they were $650,000. The decrease resulted primarily from the lower
parking and retail rentals from our parking garage in Reno, Nevada, which we
sold in February 2000.

     Cost of Real Estate Sold and Real Estate Operating Expense.  The cost of
real estate sold was $3,646,000  in 2000, up $2,822,000 from $824,000 in 1999.
The increase resulted from the sale of our Reno parking garage to Fitzgeralds
Reno, Inc. during February 2000 and the sale of 82 lots from our Houston Project
during 2000 compared to our sale of the Santa Rosa land in Kansas City and the
sale of 38 lots from our Houston project during 1999.   Real estate operating
expense was $250,000 during 2000, down $531,000 from $781,000 in 1999.  This
decrease was the result of decreased costs associated with the parking and
retail operation of the Reno garage.

     Pilot Plant, Engineering and R&D.  Expenses from pilot plant, engineering
and research and development activities were $18,520,000 in 2000, up $7,657,000
from 1999 when these expenses were $10,863,000.  The increase was primarily the
result of the continued expansion of our Tulsa, Oklahoma pilot plant facility,
the construction of a product upgrading pilot plant at our technology center,
higher research and development spending and higher consulting expense
associated with the design and engineering of the Sweetwater plant.

     General and Administrative Expense.  General and administrative expenses
were $13,118,000 in 2000, up $2,709,000 from 1999 when these expenses were
$10,409,000.  The increase is attributable primarily to higher wages and
salaries resulting from our higher staffing levels, higher rent expense and
higher expense for outside consultants and advisors.

     Investment, Interest and Other Income (Expense).  Investment, interest and
other income increased to $2,358,000 in 2000, up $494,000 from 1999 when this
income was $1,864,000. The increase was primarily attributable to higher
interest income from increased cash balances and foreign currency exchange gains
during 2000 compared to 1999.

     Provision for Income Taxes.  Income tax expense was $2,486,000 in 2000 up
from zero in 1999.  This tax expense was an Australian withholding tax on
payments made to the Company by the Commonwealth of Australia under our license
and loan agreements with the Commonwealth. We expect to incur similar
withholding tax expense with respect to any future payments to the Company by
the Commonwealth under either of these agreements. We incurred a loss in both
2000 and 1999 and did not recognize an income tax benefit for such loss.

     Net Income.  In 2000, we experienced a loss of $25,168,000.  The loss was
$8,010,000 higher than 1999 when we experienced a loss of $17,158,000.  The
increase in the loss is a result of the factors described above.

1999 COMPARED TO 1998

     Joint Development Revenue. Revenues from our joint research and development
and pilot plant operations were $1,986,000 in 1999, up $207,000 from 1998 when
they were $1,779,000. The increase was primarily due to the funding received
under the joint development agreement with ARCO relating to our pilot plant at
their Cherry Point refinery in Washington. This increase was partially offset by
decreased revenues under our joint development agreement with Texaco as a result
of the completion in 1998 of construction of the hybrid, multiphase (HMX)
reactor at our pilot plant.

     Real Estate Sales Revenue. Revenues from the sale of real estate were
$1,219,000 in 1999, down $1,197,000 from $2,416,000 in 1998. This decrease was
the result of the sale of 38 lots in the Houston Project and the sale of the
remaining land in Kansas City, Missouri during 1999 compared to the sale of the
final three condominium units at our Quail Run development in Santa Fe, New
Mexico, the sale of undeveloped land in Kansas City, Missouri and the sale of a
boat slip in Florida during 1998. These revenues should continue to decrease as
the remaining real estate inventory is sold.

     Other Revenue. Other revenues were $650,000 in 1999, up $366,000 from 1998
when they were $284,000. The increase resulted primarily from parking and retail
rentals at our parking garage in Reno, Nevada. We sold this parking garage
during the first quarter of 2000 and we will no longer receive revenues from
parking and retail rentals at this garage.

                                       38
<PAGE>


     Cost of Real Estate Sold and Real Estate Operating Expense. The cost of
real estate sold was $824,000 in 1999, down $1,563,000 from $2,387,000 in 1998.
The decrease resulted from the sale of 38 lots in the Houston Project and the
sale of the remaining land in Kansas City, Missouri. Our 1998 cost of sales
included the sale of our remaining condominium units in New Mexico, the
undeveloped land in Kansas City and the boat slip in Florida during 1998. Real
estate operating expenses were $781,000 during 1999, up $514,000 from 1998 when
they were $267,000. This increase was primarily attributed to inclusion of a
full year of expenses in 1999 as the merger with SLH occurred in August of 1998.

     Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $10,863,000 in 1999, up $5,170,000
from 1998 when these expenses were $5,693,000. The increase occurred primarily
as a result of the expansion of our Tulsa, Oklahoma pilot plant facility, the
purchase of equipment for our recently acquired technology center in Tulsa,
Oklahoma, higher research and development spending and higher outside
engineering expense associated with our joint efforts with ARCO to design and
construct the pilot plant at ARCO's Cherry Point refinery and our efforts to
accelerate the preliminary design and operating parameters of the Sweetwater
plant.

     General and Administrative Expense. General and administrative expenses
were $10,409,000 in 1999, up $1,258,000 from 1998 when these expenses were
$9,151,000. The increase is attributable primarily to higher wages and salaries
resulting from our increased staffing levels, increased rent expense and
increased expense for outside consultants.

     Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $1,864,000 in 1999, up $556,000 from 1998 when this
income was $1,308,000. The increase was primarily attributable to interest
income from higher cash balances following the merger of Syntroleum Corporation
and SLH Corporation.

     Provision for Income Taxes. We incurred a loss in both 1999 and 1998 and
did not recognize an income tax benefit for such loss.

     Net Income. In 1999, we experienced a loss of $17,158,000. The loss was
$5,447,000 higher than in 1998 when we experienced a loss of $11,711,000. The
increase in the loss is a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

     As of December 31, 2000, we had $86,497,000 in cash and short-term
investments and $5,754,000 in current liabilities.  Our long-term debt as of
December 31, 2000 was $731,000, and this debt matures in 2025.  The long-term
debt amount reflects cash loan proceeds received in escrow (AUD $12 million
which is approximately U.S. $7 million) discounted over the remaining term of
the loan using an imputed interest rate of 9%.  The difference between the cash
received and the discounted long-term debt amount of $731,000 has been recorded
as a reduction in the costs of the related Sweetwater project.  The long term
debt amount reflected for these proceeds will increase over time as the
remaining term of the loan declines.

     Prior to our merger with SLH, our primary sources of liquidity were equity
capital contributions and prepaid license fees and our principal liquidity needs
were to fund expenditures relating to research and development and pilot plant
activities and to fund working capital.  At December 31, 2000, we had $2,934,000
in accounts and notes receivable outstanding. We currently have short-term
investments of approximately $3,300,000, of which $3,200,000 secures 49.9
percent of a letter of credit for the Powder Basin Partnership in which we are a
49.9 percent investor.   We also have $13,744,000 in restricted investments that
are held in escrow representing funds received from the Commonwealth of
Australia under our loan and license agreements with the Commonwealth.

     Cash flows provided by (used in) operations were $5,316,000 in 2000
compared to ($16,599,000) in 1999 and $(12,132,000) in 1998.  This increase in
cash flows in 2000 was primarily the result of the receipt of $27,520,000 in
deferred revenue offset by the recognition of $2,000,000 of previously deferred
revenue.  Cash flows provided by operations also increased because of the
completion of site development for the beginning phases of the Houston Project,
the sale of 82 lots from the Houston Project and the sale of the Reno garage.
Cash flows provided by (used in) investment activities were $(39,656,000) in
2000 compared to $(4,094,000) in 1999 and $35,242,000 in 1998.  The decrease in
2000 resulted primarily from the increased capitalized costs for our Sweetwater
project and the increase of restricted funds associated with the Commonwealth of
Australia license and loan agreements.

                                       39
<PAGE>


     Cash flows provided by financing activities were $97,539,000 in 2000
compared to $6,028,000 in 1999 and $1,713,000 in 1998. The increase in 2000 was
primarily due to the completion of the sale of 5,650,000 shares of common stock
pursuant to a public offering in which we received net proceeds of approximately
$92,242,000 after the underwriting discount and offering expenses and the
receipt of $757,000 in long-term debt under the Commonwealth of Australia loan
agreement.  We intend to use a substantial portion of these net proceeds to fund
our portion of the equity financing for our Sweetwater project.  We intend to
use any remaining net proceeds to fund costs associated with pilot plant
facilities, the development and construction of additional GTL plants, research
and development activities, the acquisition of complementary technologies,
working capital needs and other general corporate purposes.

     The construction of our GTL plants will require significant capital
expenditures. Our other efforts to commercialize the Syntroleum Process will
also involve significant expenditures.   We have an effective registration
statement for the proposed offering from time to time of shares of our common
stock  for an aggregate initial offering price of $21,125,000.  We intend to
obtain additional funding through joint ventures, partnerships, license
agreements and other strategic alliances, as well as various other financing
arrangements.  We may also seek debt or additional equity financing in the
capital markets. In the event such capital resources are not available to us,
our GTL plant development and other activities may be curtailed. Additionally,
we estimate that construction and disposal costs to complete real estate
projects in development will be approximately $1.5 million, although the actual
amount could be materially different than this estimated amount.

     We have sought and intend to continue to temporarily invest our assets,
pending their use, so as to avoid becoming subject to the registration
requirements of the Investment Company Act of 1940. These investments are likely
to result in lower yields on the funds invested than might be available in the
securities market generally. If we were required to register as an investment
company under the Investment Company Act, we would become subject to substantial
regulation that would materially adversely affect us.

INITIAL SPECIALTY PRODUCT GTL PLANT

     We are developing a 10,000 barrel per day specialty product plant, which we
call the Sweetwater plant. We currently anticipate that this plant will produce
synthetic lube oil, normal paraffins, process oils and light paraffins. The
project is expected to use a fixed tube reactor design which produces a high
yield of the desired products with high wax content and has lower scale-up risks
than other reactor designs. The plant is also expected to include additional
refining equipment necessary to produce the targeted specialty products. We plan
to construct this plant through a joint venture.  In February 2000, we selected
a site for the plant about four kilometers from the North West Shelf liquid
natural gas facility on the Burrup Peninsula of Western Australia.

     In November 1999, we signed a project development agreement with Tessag, a
wholly owned subsidiary of RWE AG, to provide us with a fixed price for the
design and construction of the Sweetwater plant. Tessag also agreed to pay
liquidated damages up to certain levels in the event certain process and product
specifications are not achieved.  We currently expect that Tessag will complete
the plant design and, subject to completion of plant financing, begin
construction in 2001. We expect the plant to be operational in late 2003 or
early 2004, although construction of the plant will be subject to the risk of
delay inherent in any large construction project.

     The State of Western Australia has announced its intention to assist the
Sweetwater project with an AUD $30 million (approximately U.S. $17 million)
common use infrastructure package, including a desalinization plant to which our
plant will supply steam and from which our plant will receive cooling water. In
addition, we have entered into a gas purchase agreement with the North West
Shelf Gas Partners, whose members include affiliates of BHP Petroleum, BP,
Chevron, Mitsui, Mitsubishi, Royal Dutch Shell and Woodside Energy Ltd. Subject
to certain conditions, North West Shelf Gas Partners have agreed to supply the
Sweetwater plant with the natural gas required to operate the plant at full
capacity for 20 years.

     In August 2000, we entered into a license agreement with the Commonwealth
of Australia to license the Syntroleum Process as part of a program designed to
unlock the value of Australia's energy reserves and improve the quality of the
environment. Under the license agreement, the Commonwealth made an AUD $30
million (approximately U.S. $17 million) deposit, of which AUD $15 million
(approximately U.S. $8 million) is held in escrow pending satisfaction of
conditions relating to the construction of the Sweetwater project.  AUD $20
million (approximately U.S. $11 million) of the license fee may be credited
against future site license fees. At the same

                                       40
<PAGE>

time, we entered into a loan agreement with the Commonwealth under which the
Commonwealth will make a non-amortizing, interest-free loan to us in the amount
of AUD $40 million (approximately U.S. $22 million) with a 25-year maturity to
support the further development and commercialization of GTL technologies in
Australia and under which we have agreed to conduct a feasibility study on
constructing a large-scale GTL fuels plant in Australia.  Loan proceeds are to
be made available to us in three successive advances.  Pending satisfaction of
conditions relating to the financing, construction and completion of the
Sweetwater project, loan proceeds will be held in escrow.  Should the conditions
not be fully satisfied by August 2004, any license and loan proceeds remaining
in escrow will be returned to the Commonwealth.

     In October 2000, we entered into a non-binding letter of intent with
Ivanhoe Energy Inc. with respect to its contemplated contribution of $21 million
in exchange for a 13% equity investment in the Sweetwater plant.  Upon execution
of the letter of intent, Ivanhoe funded $2 million of its contemplated
contribution for front-end engineering and other project development costs.
Under certain circumstances, Ivanhoe Energy would have the right to receive cash
flow distributions in excess of 13% if the plant does not meet specified
performance targets.

     In June 2000, we entered into a non-binding letter of intent with a
subsidiary of Enron with respect to its contemplated contribution of $21 million
in exchange for a 13% equity investment in the Sweetwater project. Under the
letter of intent, Enron would receive a $1 million credit toward its investment
in the Sweetwater project as a result of its prior contribution toward the
development of the project, resulting in net equity funding to be received from
Enron of $20 million. Under certain circumstances, Enron would have the right to
receive cash flow distributions in excess of 13% if the plant does not meet
specified performance targets.

     Upon Enron's funding of its net capital contribution, it would become
entitled to convert its interest in the Sweetwater project into a maximum of
1,500,000 shares of our common stock during a period beginning one year after
the date on which the project completes successful performance testing and
ending on the tenth anniversary of execution of definitive agreements relating
to the transaction contemplated in the letter of intent. In addition, upon
Enron's funding of its net capital contribution, it would receive a warrant to
acquire no more than 1,500,000 additional shares of our common stock at an
exercise price equal to $21.00 per share.

     Consummation of the transactions contemplated by the letters of intent with
Ivanhoe and Enron requires the satisfaction of a number of conditions, some of
which are not within our control, including Ivanhoe and Enron management
approvals, satisfactory completion of due diligence by Ivanhoe and Enron,
funding of commitments with respect to other debt and equity financing and the
negotiation and execution of definitive agreements. As a result, the
transactions contemplated by the letters of intent may not be realized or may
only be realized under terms and conditions that differ materially from those
contemplated by the letters of intent.

     In addition to the $2 million contributed by Ivanhoe, the $1 million
contributed by Enron and $2 million contributed by Methanex Corporation prior to
its withdrawal from the project in May 2000, we have had made a substantial
financial contribution toward the development of the Sweetwater project through
December 31, 2000, and we expect to continue to make additional financial
contributions in the future.

     Tessag recently completed front end engineering and design and has provided
us a price quote of $506 million for the engineering, procurement and
construction of the Sweetwater plant.  The quote includes provision for expanded
refining capabilities that will give the plant greater flexibility for a wider
range of products than originally contemplated.  The quote does not include
interest during construction and other owner's costs, which include proprietary
catalysts to be supplied by Syntroleum.  These costs are yet to be finalized,
but could represent a substantial portion of total plant costs.  Tessag's price
quote may change due to fluctuations in currency exchange rates, but will be
converted into a firm, lump sum, dollar denominated contract upon final closing
of the financing for the plant.  With the quote completed, we are working with
Tessag toward finalizing the fixed price EPC contract.  However, we can give no
assurance that the contract will be finalized. If finalized, the contract may be
on terms materially different than the terms currently anticipated. Upon
execution of the EPC contract, we can then proceed with completing the debt and
equity financing for the project.

     We currently expect the capital costs of the Sweetwater project to be
funded primarily by non-recourse senior and subordinated debt at the project
level, as well as the equity financing discussed above, together with our own
equity contribution.  We are currently seeking to finalize the equity investment
transactions discussed above and we are exploring sources of debt capital to
fund final design and construction.  However, we can give no assurance that the
necessary capital for this project will be obtained.

                                       41
<PAGE>

CURRENCY RISK

     We expect to conduct a portion of our business in currencies other than the
United States dollar. We may attempt to minimize our currency exchange risk by
seeking international contracts payable in local currency or we may choose to
convert our currency position into United States dollars. For example, our
funding plan with the Commonwealth of Australia is in Australian dollars. In
addition, we expect to seek contractual purchase price adjustments based on an
exchange rate formula related to United States dollars. In the future, we may
also have significant investments in countries other than the United States. The
functional currency of these foreign operations may be the local currency, and
accordingly, financial statement assets and liabilities may be translated at
prevailing exchange rates and may result in gains or losses in current income.
Currently, all of the Company's subsidiaries use the U.S. dollar for their
functional currency.  Assets and liabilities are translated into U.S. dollars at
the rate of exchange in effect at the balance sheet date. Transaction gains and
losses that arise from exchange rate fluctuations applicable to transactions
denominated in a currency other than the U.S. dollar are included in the results
of operations as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
''Accounting for Derivative Instruments and Hedging Activities.'' SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133, as amended by SFAS No. 137, and further amended by SFAS No. 138, is
effective for fiscal years beginning after June 15, 2000. However, companies may
elect to adopt SFAS No. 133 prior to that date. SFAS No. 133 cannot be applied
retroactively and must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997.  We do not purchase futures
contracts nor do we hold derivative investments. The Company adopted SFAS No.
133 beginning January 1, 2001. The adoption of SFAS No.133 did not have a
material effect on its financial statements.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We had $86,497,000 in cash equivalents and short-term investments in the
form of money market instruments and U.S. Treasury securities as of December 31,
2000.  The majority of these securities mature in less than 90 days.  Our policy
is to hold short-term securities to maturity, which minimizes interest rate
risk.  The average interest rate on these investments at December 31, 2000 was
approximately 6%.  We also hold restricted funds in the form of Australian
escrow accounts.  These funds earn interest at approximately 6% and are marked
to market at the end of each reporting period.  These accounts can have
fluctuating balances relating to foreign currency exchange between the U.S. and
Australian Dollar.

     We expect to conduct a portion of our business in currencies other than the
United States dollar. Currently, the functional currency of all our subsidiaries
is U.S. currency and our foreign currency risk results in transaction gains and
losses that will flow through the income statement.  Foreign exchange risk
currently relates to two escrow accounts held in Australian dollars in the
amount of U.S. $13,744,000 at the end of the reporting period, and to long-term
debt held in Australian dollars in the amount of U.S. $731,000 at the end of the
reporting period. This long-term debt matures in 2025 and has been discounted
using an imputed interest rate of 9%.  We also have deferred revenue that is
denominated in Australian currency.  This deferred revenue was U.S. $16,680,000
at the end of the reporting period. These restricted funds, long-term debt,
discount and deferred revenue will be converted to U.S. dollars for financial
reporting at the end of every reporting period.  To the extent that there are
gains or losses these will be shown in our income statement.

     We do not purchase futures contracts nor do we purchase or hold any
derivative financial instruments.

                                       42
<PAGE>

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements, together with the report thereon of
Arthur Andersen LLP dated January 19, 2001, are set forth on pages F-1 through
F-16 hereof.  See Item 14 for an index to the consolidated financial statements.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.    EXECUTIVE COMPENSATION

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Items 10, 11, 12 and 13 is incorporated herein
by reference to our definitive proxy statement for our 2001 annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120
days of December 31, 2000.

     Certain information with respect to our executive officers is set forth in
Item I of this annual report under the caption "Executive Officers of the
Registrant."

                                       43
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


     (A)(1)  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

         CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 2000:
<S>                                                                                         <C>

Report of Independent Public Accountants                                                     F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999                                 F-2
Consolidated Statements of Operations for the Three Years Ended December 31, 2000            F-3
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 2000  F-4
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2000            F-5
Notes to Consolidated Financial Statements                                                   F-6

</TABLE>

     (A)(2)     FINANCIAL STATEMENT SCHEDULES

     All schedules and other statements for which provision is made in the
applicable regulations of the Securities and Exchange Commission have been
omitted because they are not required under the relevant instructions or are
inapplicable.

     (A)(3)     EXHIBITS

     Exhibits.  The following exhibits are filed as part of this Annual Report
on Form 10-K:



 NO.     DESCRIPTION OF EXHIBIT
----     -----------------------
*2.1     Distribution Agreement dated December 20, 1996 between Seafield
Capital Corporation and SLH (incorporated by reference to Exhibit 2(a) to Form
10/A of the Company dated February 3, 1997).

*2.2     Agreement and Plan of Merger dated as of March 30, 1998 by and between
SLH and Syntroleum (incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus filed with the Securities and Exchange Commission on July
6, 1998).

*2.3     Blanket Assignment, Bill of Sale, Deed and Assumption Agreement dated
February 28, 1997 between Seafield Capital Corporation and SLH (incorporated by
reference to Exhibit 2(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).

*3.1     Certificate of Incorporation of the Company (incorporated by reference
to Annex B to the Proxy Statement of the Company filed with the Securities and
Exchange Commission on May 12, 1999).

*3.2     Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company dated June 16, 1999 (incorporated by reference to Exhibit
4.5 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 17, 1999).

*3.3     Bylaws of the Company (incorporated by reference to Annex C to the
Proxy Statement of the Company filed with the Securities and Exchange Commission
on May 12, 1999).

*4.1     Amended and Restated Rights Agreement dated as of January 31, 1997 and
amended and restated on June 17, 1999 (incorporated by reference to Exhibit 4.4
to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 17, 1999).

     The Company is a party to debt instruments under which the total amount of
securities authorized does not exceed 10% of the total assets of the Company and
its subsidiaries on a consolidated basis.  Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such
instruments to the Commission upon request.

                                       44
<PAGE>

*10.1     Form of Master License Agreement of Syntroleum (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on Form S-4
(Registration No.  333-50253)).

+10.2     Form of Amended and Restated Indemnification Agreement between
Syntroleum and each of its officers and directors

 +*10.3     1993 Stock Option and Incentive Plan of Syntroleum (incorporated by
reference to Appendix E to the Joint Proxy Statement/Prospectus filed by the
Company with the Securities and Exchange Commission on July 6, 1998).

 +*10.4     Stock Option Plan for Outside Directors of Syntroleum (incorporated
by reference to Appendix F to the Joint Proxy Statement/Prospectus filed by the
Company with the Securities and Exchange Commission on July 6, 1998).

*10.5     Purchase Agreement dated January 12, 1998 by and between Syntroleum
and Enron Capital & Trade Resources Corp.  (incorporated by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-4 (Registration No.
333-50253))

 +*10.6     Amended and Restated Employment Agreement between Syntroleum and
Kenneth L. Agee (incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-4 (Registration No.  333-50253)).

 +*10.7     Amended and Restated Employment Agreement between Syntroleum and
Mark A. Agee (incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-4 (Registration No.  333-50253)).

 +*10.8     Amended and Restated Employment Agreement between Syntroleum and
Charles A. Bayens (incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-4 (Registration No.  333-50253))

 +*10.9     Amended and Restated Employment Agreement between Syntroleum and
Eric Grimshaw (incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-4 (Registration No.  333-50253)).

 +*10.10     Amended and Restated Employment Agreement between Syntroleum and
Peter V. Snyder, Jr. (incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-4 (Registration No.  333-50253)).

 +*10.11     Amended and Restated Employment Agreement between Syntroleum and
Randall M.  Thompson (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-4 (Registration No.  333-50253)).

 +*10.12     Amended and Restated Employment Agreement between Syntroleum and
Larry Weick (incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (Registration No.  333-50253)).

*10.13     Master Preferred License Agreement dated September 25, 1996 between
Syntroleum and Texaco Natural Gas, Inc. (incorporated by reference to Exhibit
10.22 to the Company's Registration Statement on Form S-4 (Registration No.
333-50253)).

*10.14     Master Preferred License Agreement dated March 7, 1997 between
Syntroleum and Marathon Oil Company (incorporated by reference to Exhibit 10.23
to the Company's Registration Statement on Form S-4 (Registration No.
333-50253)).

*10.15     Master Preferred License Agreement dated April 10, 1997 between
Syntroleum and Atlantic Richfield Company (incorporated by reference to Exhibit
10.24 to the Company's Registration Statement on Form S-4 (Registration No.
333-50253)).

                                       45
<PAGE>

*10.16     Volume License Agreement dated August 1, 1997 between Syntroleum and
YPF International, Ltd.  (incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (Registration No.  333-50253)).

*10.17     Volume License Agreement dated February 4, 1998 between Syntroleum
and Kerr-McGee Corporation (incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement on Form S-4 (Registration No. 333-50253)).

*10.18     Volume License Agreement dated January 12, 1998 between Syntroleum
and Enron Capital & Trade Resources Corp. (incorporated by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-4 (Registration No.
333-50253)).

*10.19     Site License Agreement dated January 12, 1998 between Syntroleum and
Syntroleum/Sweetwater Company, L.L.C. (incorporated by reference to Exhibit
10.28 to the Company's Registration Statement on Form S-4 (Registration No.
333-50253)).

*10.20     Facilities Sharing and Interim Services Agreement dated February 28,
1996 between Seafield Capital Corporation and SLH (incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).

*10.21     Lab Holdings, Inc. Facilities Sharing and Interim Services Agreement
dated June 1, 1998 between SLH and Syntroleum (incorporated by reference to
Exhibit 10.29 to the Company's Registration Statement on Form S-4 (Registration
No. 333-50253)).

*10.22     Tax Sharing Agreement dated February 28, 1996 between Seafield
Capital Corporation and SLH (incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).

+*10.23     SLH Corporation 1997 Stock Incentive Plan (incorporated by
reference to Exhibit 10(c) to Amendment No. 1 to the Company's Annual Report on
Form 10/A of the Company for the year ended December 31, 1997).

 +*10.24     Form of Employment Agreements with certain executive officers of
SLH (incorporated by reference to Exhibit B to Exhibit 2(a) to Form 10/A of the
Company dated February 3, 1997).

 +*10.25     Form of Option Agreement with certain executive officers under the
SLH Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit
10(e) to Amendment No. 1 to the Company's Annual Report on Form 10K/A for the
year ended December 31, 1997).

 +*10.26     Form of Option Agreement with directors under the SLH Corporation
1997 Stock Incentive Plan (incorporated by reference to Exhibit 10(f) to
Amendment No. 1 to the Company's Annual Report on Form 10K/A for the year ended
December 31, 1997).

 +*10.27     Form of Consent to Adjustment to Option Agreements called for by
Section 2.1(c) of the Agreement and Plan of Merger dated as of March 30, 1998 by
and between SLH and Syntroleum (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-4 (Registration No. 333-50253)).

 +*10.28     Certified copy of resolutions approving a certain bonus arrangement
for James R. Seward (incorporated by reference to Exhibit 10(g) to Amendment No.
1 to the Company's Annual Report on Form 10K/A for the year ended December 31,
1997).

 +*10.29     Employment Agreement between Syntroleum and Paul F. Schubert dated
May 15, 1999 (incorporated by reference to Exhibit 10.30 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).

 +*10.30     Employment Agreement between Syntroleum and Carla S. Covey dated
March 22, 1999 (incorporated by reference to Exhibit 10.31 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).

                                       46
<PAGE>

 +*10.31     Employment Agreement between Syntroleum and Michael L. Stewart
dated March 22, 1999 (incorporated by reference to Exhibit 10.32 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998).

*10.32     License Agreement dated April 26, 2000 between Syntroleum
Corporation and Ivanhoe Energy Inc. (incorporated by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000).

*10.33     License  Agreement  dated August 2, 2000 between Syntroleum
Corporation and  Syntroleum  Australia  Licensing  Corporation (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000).

*10.34     License  Agreement  dated  August  3, 2000 between Syntroleum
Australia Licensing  Corporation  and  the  Commonwealth  of  Australia
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).

*10.35     A$Loan  Agreement  dated  August  3,  2000 between Syntroleum
Australia Credit  Corporation  and  the  Commonwealth  of  Australia
(incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).

*10.36     Deposit  Agreement  dated  August  3, 2000 between Syntroleum
Australia Licensing Corporation,  the  Commonwealth  of  Australia  and Westpac
Banking Association (incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

*10.37     Deposit  Agreement  dated  August  3, 2000 between Syntroleum
Australia Credit  Corporation,  the  Commonwealth  of  Australia  and  Westpac
Banking Corporation (incorporated by reference to Exhibit 10.5 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

*10.38     Letter  Agreement  dated  August 3, 2000 between Syntroleum
Corporation and  the  Commonwealth  of  Australia (incorporated by reference to
Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000).

*10.39     Amendment No. 1 to Volume License Agreement dated October 11, 2000
between Syntroleum Corporation and Ivanhoe Energy Inc. (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000).

21     Subsidiaries

     Syntroleum International Corporation (a Delaware corporation)
     Syntroleum/Sweetwater Company, L.L.C. (a Delaware limited liability
     company)
     Syntroleum Australia Credit Corporation (a Delaware corporation)
     Syntroleum Australia Licensing Corporation (a Delaware corporation)
     Syntroleum International Holdings, Ltd. (a Cayman Islands exempted
     company)
     Syntroleum Sweetwater Holdings, Ltd. (a Cayman Islands exempted company)
     Syntroleum Sweetwater Operations, Ltd. (a Cayman Islands exempted
     company)
     Scout Development Corporation (a Missouri Corporation)
     Scout Development Corporation of New Mexico (a Missouri Corporation)
     BMA Resources, Inc. (a Missouri Corporation)
     529 Partners, Ltd. (a Texas limited partnership)
     Lot Development, Inc. (a Texas Corporation)
     Carousel Apartment Homes, Inc. (a Georgia Corporation)

____________________

*  Incorporated by reference as indicated.
+  Compensatory plan or arrangement.

                                       47
<PAGE>

     (B) REPORTS ON FORM 8-K

     No Current Reports on Form 8-K were filed during the last quarter of the
period covered by this Annual Report on Form 10-K.

                                       48
<PAGE>


                                   SIGNATURES

     Pursuant  to  the  requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto  duly  authorized.


                                                   SYNTROLEUM  CORPORATION


Dated:  March  19,  2001                          By:  s/  Mark  A.  Agee
                                                       ------------------
                                                           Mark  A.  Agee
                                                     President  and  Chief
                                                        Operating  Officer



     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
registrant  and  in  the  capacities  and  on  the  dates  indicated.

<TABLE>
<CAPTION>

       Name                                           Capacity                                           Date
       ----                                           --------                                           ----
<S>                        <C>                                                                    <C>

                            Chairman and Chief Executive Officer  (Principal Executive Officer)
s/ Kenneth L. Agee                                                                                  March 19, 2001
------------------------
Kenneth L. Agee
                            Vice President and Chief Financial Officer (Principal Financial Officer)
s/ Randall M. Thompson                                                                              March 19, 2001
------------------------
Randall M. Thompson

s/ Carla S. Covey           Controller (Principal Accounting Officer)                               March 19, 2001
------------------------
Carla S. Covey

s/ Mark A. Agee             Director                                                                March 19, 2001
------------------------
Mark A. Agee

s/ Alvin R. Albe, Jr.       Director                                                                March 19, 2001
------------------------
Alvin R. Albe, Jr.

s/ Frank M. Bumstead        Director                                                                March 19, 2001
------------------------
Frank M. Bumstead

s/ Robert A. Day            Director                                                                March 19, 2001
------------------------
Robert A. Day

s/ P. Anthony Jacobs        Director                                                                March 19, 2001
------------------------
P. Anthony Jacobs

s/ Robert B. Rosene, Jr.    Director                                                                March 19, 2001
------------------------
Robert B. Rosene, Jr.

s/ James R. Seward          Director                                                                March 19, 2001
------------------------
James R. Seward

s/ J. Edward Sheridan       Director                                                                March 19, 2001
------------------------
J. Edward Sheridan
</TABLE>


                                       49
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To  the  Board  of  Directors  and
Stockholders  of  Syntroleum  Corporation:


We  have  audited  the  accompanying  consolidated  balance sheets of Syntroleum
Corporation  and  subsidiaries  (a Delaware corporation) as of December 31, 2000
and  1999,  and the related consolidated statements of operations, stockholders'
equity  and  cash flows for each of the three years in the period ended December
31,  2000.  These  financial  statements are the responsibility of the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to  obtain  reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made  by  management,  as  well  as  evaluating  the overall financial statement
presentation.  We  believe  that  our  audits provide a reasonable basis for our
opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the  financial  position of Syntroleum Corporation and
subsidiaries  as  of  December  31,  2000  and  1999,  and  the results of their
operations  and their cash flows for each of the three years in the period ended
December  31,  2000, in conformity with accounting principles generally accepted
in  the  United  States.



                              ARTHUR  ANDERSEN  LLP


Tulsa,  Oklahoma
January  19,  2001

                                      F-1
<PAGE>

                     SYNTROLEUM CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>


                                                         December 31, December 31,
                                                            2000          1999
                                                         -----------  ------------
                                    ASSETS

CURRENT ASSETS:

<S>                                                         <C>        <C>

Cash and cash equivalents                                    $83,150    $20,316
Short-term investments                                         3,347      3,565
Accounts and notes receivable                                    572      1,193
Other current assets                                             407        365
                                                           ---------  ---------
Total current assets                                          87,476     25,439

REAL ESTATE HELD FOR SALE                                        -        2,665
REAL ESTATE UNDER DEVELOPMENT                                 3, 340      3,349
INVESTMENTS                                                      959      1,104
RESTRICTED CASH                                               13,744        -
PROPERTY AND EQUIPMENT, net                                   31,274      6,442
NOTES RECEIVABLE                                               2,362        297
OTHER ASSETS, net                                                723        295
                                                           ---------  ---------
                                                            $139,878    $39,591
                                                           ---------  ---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                              $5,178     $2,188
Accrued liabilities                                              576        453
                                                           ---------  ---------
Total current liabilities                                      5,754      2,641

LONG-TERM DEBT                                                   731         -
OTHER NONCURRENT LIABILITIES                                      29         94
DEFERRED REVENUE                                              35,680     11,000
MINORITY INTERESTS                                             2,936      1,024
COMMITMENTS AND CONTINGENCIES
                                                           ---------  ---------
Total liabilities                                             45,130     14,759
                                                           =========  =========

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000 shares authorized,
no shares issued                                                -          -
Common stock, $0.01 par value, 150,000 shares authorized,
40,812 and 34,669 shares issued in 2000 and 1999,
respectively, including shares in treasury                       408        347
Additional paid-in capital                                   163,858     68,935
Notes receivable from sale of common stock                      (599)      (699)
Accumulated deficit                                          (68,842)   (43,674)
                                                            ---------  ---------
                                                              94,825     24,909
Less-treasury stock, 7,675 shares in
2000 and 1999, respectively                                      (77)       (77)
                                                            ---------  ---------
Total stockholders' equity                                    94,748     24,832
                                                            ---------  ---------
                                                            $139,878    $39,591
                                                            =========  =========
</TABLE>
     The accompanying notes are an integral part of these consolidated balance
                                     sheets.

                                      F-2
<PAGE>


                     SYNTROLEUM CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>


                                                        For the Year Ended December 31,
                                                       --------------------------------

                                                         2000        1999         1998
                                                       --------    ---------    --------
REVENUES:
<S>                                                     <C>        <C>        <C>
Joint development revenue                                $1,166     $1,986     $1,779
Real estate sales                                         4,758      1,219      2,416
Licensing                                                 2,000        -          -
Other                                                        84        650        284
                                                        ----------   --------  ------
Total revenues                                            8,008      3,855      4,479
                                                       -----------  --------   ------
COSTS AND EXPENSES:
Cost of real estate sales                                 3,646        824      2,387
Real estate operating expense                               250        781        267
Pilot plant, engineering and research and development    18,520     10,863      5,693
General and administrative                               13,118     10,409      9,151
                                                       ---------- ----------  -------

INCOME (LOSS) FROM OPERATIONS                           (27,526)   (19,022)   (13,019)

INVESTMENT AND INTEREST INCOME                            4,432      1,681      1,159
FOREIGN CURRENCY EXCHANGE                                   365         -          -
OTHER INCOME (EXPENSE)                                      (17)       154        118
                                                       ---------- ----------  -------

INCOME (LOSS) BEFORE MINORITY INTERESTS
AND INCOME TAXES                                        (22,746)   (17,187)   (11,742)

MINORITY INTERESTS                                           64         29         31
INCOME TAXES                                             (2,486)       -          -
                                                       ---------- ----------  -------

NET INCOME (LOSS)                                      $(25,168)  $(17,158)  $(11,711)
                                                       ========  ==========  ========

NET INCOME (LOSS) PER SHARE -
Basic and diluted                                        $(0.84)    $(0.64)    $(0.46)
                                                       ========  ==========  ========

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING                                              30,107     26,906     25,467
                                                       ========  ==========  ========
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.

                                      F-3
<PAGE>


                                       SYNTROLEUM CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                   (in thousands)
<TABLE>
<CAPTION>


                                                               Notes
                                Common Stock     Additional   Receivable                           Total
                                   Number         Paid-in    From Sale of  Accumulated Treasury  Stockholders'
                                of Shares  Amount Capital   Common Stock   Deficit      Stock      Equity
                              --------------------------------------------------------------------------------
<S>                               <C>       <C>    <C>      <C>          <C>         <C>         <C>

BALANCE, December 31, 1997         24,502   $245   $14,028   $(699)       $(14,805)  $(11)        $(1,242)
RETIREMENT OF TREASURY STOCK           (2)     -       (11)     -              -       11             -
MERGER WITH SLH CORPORATION        10,075    101    48,891      -              -      (77)         48,915
NET INCOME (LOSS)                      -      -         -        -         (11,711)     -         (11,711)
                                   -------  ----  ---------  ------       ---------  -----       ---------
BALANCE, December 31, 1998         34,575    346    62,908    (699)        (26,516)   (77)         35,962
SETTLEMENT OF MERGER CONTINGENCY       -      -      5,997      -             -         -           5,997
STOCK OPTIONS EXERCISED                94      1        30      -             -         -              31
NET INCOME (LOSS)                     -       -       -         -          (17,158)    -          (17,158)
                                   -------  ----  ---------  ------       ---------  -----       ---------
BALANCE, December 31, 1999         34,669    347    68,935    (699)        (43,674)   (77)         24,832
STOCK OPTIONS EXERCISED               499      5     2,513      -              -        -           2,518
CONSULTANT OPTIONS GRANTED            -        -       302      -             -         -             302
OTHER                                  (6)     -      (134)    100             -        -             (34)
COMMON STOCK ISSUANCE               5,650     56    92,242      -              -        -          92,298
NET INCOME (LOSS)                     -      -        -         -          (25,168)     -         (25,168)
                                   -------  ----  ---------  ------      ---------  -----       ---------
BALANCE, December 31, 2000         40,812   $408  $163,858   $(599)       $(68,842)  $(77)        $94,748
                                   =======  ====  ========   ======       =========  =====      =========

</TABLE>
  The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>


                         SYNTROLEUM CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (in thousands)

<TABLE>
<CAPTION>


                                                                For the Year Ended December 31,
                                                               -------------------------------
                                                                2000         1999         1998
                                                                ----         ----         ----

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                            <C>       <C>         <C>
Net income (loss)                                              $(25,168)  $(17,158)  $(11,711)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Minority interest in subsidiaries                                   (87)      (313)       (31)
Depreciation and amortization                                       993        676        306
Non-cash compensation expense                                       302         -          -
Equity in affiliates                                                145       (141)        (8)
Changes in real estate held for sale and under development        2,674       (170)     1,545
Changes in assets and liabilities--
Accounts and notes receivable                                    (1,609)      (333)       466
Other assets                                                       (502)       206       (362)
Accounts payable                                                  2,990        823        348
Accrued liabilities and other                                        58       (189)    (2,685)
Deferred revenue                                                 25,520        -          -
                                                               --------    --------  ---------

Net cash provided by (used in) operating activities               5,316    (16,599)   (12,132)
                                                               --------    --------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                              (25,793)    (3,881)    (2,173)
Increase in restricted cash                                     (14,081)       -          -
Changes in investments and distributions from investment funds      218       (213)    37,415
                                                               --------    --------  ---------

Net cash provided by (used in) investing activities             (39,656)    (4,094)    35,242
                                                               --------    --------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and option exercises          94,782         31          -
Minority interest investment                                      2,000         -       1,000
Proceeds from issuance of long-term debt                            757         -          -
Settlement of merger contingency                                     -       5,997        -
Cash received from merger                                            -          -         713
                                                               --------    --------  ---------

Net cash provided by financing activities                        97,539      6,028      1,713
                                                               --------    --------  ---------

FOREIGN EXCHANGE EFFECT ON CASH                                    (365)        -          -
                                                               --------    --------  ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             62,834    (14,665)    24,823
CASH AND CASH EQUIVALENTS, beginning of period                   20,316     34,981     10,158
                                                               --------    --------  ---------

CASH AND CASH EQUIVALENTS, end of period                        $83,150    $20,316    $34,981
                                                               =========  =========  =========

</TABLE>


  The accompanying notes are an integral part of these consolidated statements.

                                      F-5
<PAGE>

                    SYNTROLEUM CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF REPORTING

     The primary operations of Syntroleum Corporation (together with its
predecessors and subsidiaries, the "Company" or "Syntroleum") to date have
consisted of the research and development of a proprietary process (the
"Syntroleum Process") designed to convert natural gas into synthetic liquid
hydrocarbons.  Synthetic liquid hydrocarbons produced by the Syntroleum Process
can be further processed into high quality liquid fuels such as diesel, kerosene
and naphtha, or high quality specialty products such as synthetic lubricants,
synthetic drilling fluid, waxes, liquid normal paraffins and certain chemical
feedstocks.

     The Company's current focus is to further demonstrate the commercial
viability of its proprietary technology.  The Company has sold license
agreements to seven oil companies and the Commonwealth of Australia.  In
addition to operating its own pilot plant in Tulsa, Oklahoma, the Company
participated in the operation of a pilot plant located at ARCO's refinery in
Cherry Point, Washington.  The Company is developing a commercial-scale
specialty products plant to be located in Western Australia known as the
Sweetwater project.

     On August 7, 1998, the Company's predecessor, Syntroleum Corporation,
merged with SLH Corporation,  ("SLH").  This merger was accounted for as a
reverse acquisition.  The results of operations of SLH have been included in the
results of Syntroleum since completion of the merger with SLH.  Unaudited pro
forma results of operations for the year ended December 31, 1998, as though the
merger with SLH had occurred at January 1, 1998, are presented below.  The pro
forma results of operations are not necessarily indicative of the actual
operating results had the transaction been consummated at the beginning of the
period presented below or in future operating results of the combined
operations:

                                           1998
                                      --------------
                                      (in thousands)
Revenues                             $       12,028
Net income (loss)                            (7,771)
Basic and diluted
  Earnings (loss) per share          $        (0.31)

OPERATIONS

     The construction of GTL plants will require significant capital
expenditures. The Company's other efforts to commercialize the Syntroleum
Process will also involve significant expenditures.   The Company has an
effective registration statement for the proposed offering from time to time of
shares of common stock for an aggregate initial offering price of $21,125,000.
The Company intends to obtain additional funding through joint ventures,
partnerships, license agreements and other strategic alliances, as well as
various other financing arrangements.  The Company may also seek debt or
additional equity financing in the capital markets.  In the event such capital
resources are not available to the Company, its GTL plant development and other
activities may be curtailed.

CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries.  All significant inter-company accounts and
transactions have been eliminated.  Investments in affiliated companies of 20%
to 50% in which Syntroleum does not have a controlling interest are accounted
for by the equity method.  Investments in affiliated companies of less than 20%
are accounted for by the cost method.

REVENUE RECOGNITION

     The Company recognizes revenues from joint development activities as the
related expenses are incurred because the contracts provide that revenue is
earned as the expenses under the contract are incurred. Substantially all of the
Company's joint development revenues during the periods presented have been from

                                      F-6
<PAGE>

joint development activities with several major oil companies (see Note 17).
All such joint development activities were pursuant to joint research and
development agreements where the Company expenses its research and development
costs as incurred.

     The Company recognizes revenue on the sale of license agreements by
recording 50% of the license fee deposit as revenue when:  (1) the license
agreement has been formally executed, (2) the license fee deposit has been paid
in cash and (3) the Company has delivered to the licensee the process design
package for the licensee's initial licensed plant.  Since 50% of the license fee
deposit is subject to the Company's indemnity obligation with respect to the
performance guarantee on the related plant, the remaining license fee deposit is
recorded as deferred revenue in the consolidated balance sheets and will be
recognized as revenue in the consolidated statements of operations after the
related plant has passed certain performance tests.  Option fees, which provide
licensees the right to include additional geographic areas in its license
agreement territory, are deferred until the earlier of the option being
exercised or lapsing.  During 2000, the Company recognized $2 million as revenue
related to an expired option agreement.  As of December 31, 2000, the Company
has deferred all amounts received related to license   agreements.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of three months or less.

REAL ESTATE

     Real estate sales are recognized when consummated.  Profit is recognized
using the full accrual method when the down payment, continuing investment, and
transfer of risk criteria have been satisfied.  Payments received from buyers
prior to recording of a sale are recorded as deposits.  Real estate rentals and
other revenues are accrued in the period earned.

     Real estate is valued at lower of cost, including development costs, or
market.  Development costs that are incurred during the period of development or
construction are capitalized.  Capitalized costs are charged to expense as
properties are sold.

     During 2000, the Company sold its remaining tract of land in Corinth, Texas
for $36,000 and its parking garage in Reno, Nevada for $3,059,000 (See Note 6).
The Company also sold 82 lots in Houston for $1,663,000.  These assets were
acquired in the Company's merger with SLH.

SHORT -TERM INVESTMENTS

     Short-term investments consist of U.S. Treasury securities and debt
obligations of U.S. Government agencies with original maturities between three
and twelve months.  Management determines the appropriate classification of
these securities at the time of purchase and re-evaluates such designation at
each subsequent balance sheet date.  At December 31, 2000 and 1999, the
Company's investment portfolio consisted of debt securities classified as
held-to-maturity and trading securities presented at amortized cost and fair
value, respectively.

RESEARCH AND DEVELOPMENT

     The Company incurs significant costs for research, development and
engineering programs.  Such costs are charged to expense when incurred.

INCOME TAXES

     Income taxes are accounted for using the asset and liability method of
accounting for income taxes.  Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and of net operating loss carry-forwards.
Deferred tax assets and liabilities are measured using the enacted tax rates and
laws in effect or that will be in effect when the differences are expected to
reverse.  The Company records a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be realized.

                                      F-7
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

     The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company makes assessments of impairment on a project-by-project basis.  The
impairment provision is based on the excess of carrying value over fair value.
Fair value is defined as the present value of the estimated future net revenues
of a project.  No impairment provisions were required in 2000, 1999 or 1998.

SEGMENTS

     The Company has certain real estate assets that it acquired in the merger
with SLH.  Management's intent is to liquidate these assets and it does not
intend to acquire additional real estate holdings.  The Company's primary
operation is to commercialize its proprietary technology.  Accordingly,
management views the Company as having only one segment.

EARNINGS PER SHARE

     The Company applies the provisions of  SFAS No. 128, "Earnings Per Share."
Basic and diluted earnings (losses) per common share were computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding during the reporting period. Options to purchase 3,114,347,
2,721,925 and 2,131,839 shares of common stock at an average exercise price of
$10.43, $7.44 and $7.44 were not included in the computation of diluted earnings
per share for the years ended December 31, 2000, 1999 and 1998, respectively, as
inclusion of such options would be anti-dilutive.

RECLASSIFICATIONS

     Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform with the 2000 presentation.  Such reclassifications did
not impact net income (loss).

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSACTIONS

     All of the Company's subsidiaries use the U.S. dollar for their functional
currency.  Assets and liabilities are translated into U.S. dollars at the rate
of exchange in effect at the balance sheet date.  Transaction gains and losses
that arise from exchange rate fluctuations applicable to  transactions
denominated in a currency other than the  U.S. dollar are included in the
results of operations as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
''Accounting for Derivative Instruments and Hedging Activities.'' SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting
treatment. SFAS No. 133, as amended by SFAS No. 137, and further amended by SFAS
No. 138, is effective for fiscal years beginning after June 15, 2000. However,
companies may elect to adopt SFAS No. 133 prior to that date. SFAS No. 133
cannot be applied retroactively and must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997.
The Company does not purchase futures contracts nor does it hold derivative
investments.  The Company adopted SFAS No. 133 beginning January 1, 2001. The
adoption of SFAS No.133 did not have a material effect on its financial
statements.

                                      F-8
<PAGE>

2.  INVESTMENTS:

     At December 31, 2000, the Company had a 4.34% interest in a hotel
partnership in Tulsa, Oklahoma having a carrying value of $100,000.  The Company
also owns a 3.61% investment in a privately held venture capital limited
partnership having a carrying value of  $476,000 and an investment in a
developer of a proprietary bone substitute technology, which has a carrying
value of $565,000 at December 31, 2000.  These assets were acquired in the
Company's merger with SLH.

     The Company has a 49.9% interest in a partnership that owns a shopping
center located in Gillette, Wyoming having a carrying value of ($181,000).  This
asset was acquired in the Company's merger with SLH.  The Company has guaranteed
debt (with an unpaid balance of  $5,635,000 at December 31, 2000) of the
shopping center partnership. Because the Company has guaranteed this debt, the
investment is carried below zero to reflect the Company's pro rata share of the
partnership's deficit.  The Company's obligation is secured by a  $3.2 million
U.S. Agency note.  Summary financial information of the shopping center
partnership is shown below:

<TABLE>
<CAPTION>


                             For the Year Ended
                               December 31,
                         ----------------------
                         2000     1999     1998
                         ----------------------
                             (in thousands)

Results of Operations

<S>                      <C>      <C>      <C>

Revenue                   $878     $830     $798
Gross profit               501      466      446
Net earnings               155      283       71

                               December 31,
                         ----------------------
                         2000     1999     1998
                         ----------------------
                             (in thousands)
Financial Position
Current assets          $1,042   $1,303   $1,193
Real estate              4,122    4,357    4,343
Other assets               186      210      189
                       -------- -------   ------
                        $5,350   $5,870   $5,725
                       ======== =======   ======

Short-term borrowings     $210     $195     $175
Current liabilities         81      114       77
Long-term borrowings     5,425    5,635    5,830
                      -------- -------   ------
                         5,716    5,944    6,082
Partnership deficit       (366)     (74)    (357)
                       -------- -------   ------
                        $5,350   $5,870   $5,725
                       ======== =======    ======

</TABLE>

3.  RESTRICTED CASH:

     Restricted cash consist of funds held in two escrow accounts denominated in
Australian dollars and carried at fair value.  These restricted funds are held
in the Company's name in a custodian account with a major Australian financial
institution and are restricted as to withdrawal (see Notes 7 and 9).  These
funds are restricted as to use and can only be withdrawn with a valid drawdown
notice signed by both the Company and the Commonwealth of Australia after
certain conditions have been met related to the Sweetwater project.  The Company
has sole rights to all interest earned on these escrow balances, except after
notice of default by the Company on the note.

4.  PROPERTY AND EQUIPMENT:

     Property and equipment is stated at cost.  When assets are sold or retired,

                                      F-9
<PAGE>

the cost and accumulated depreciation related to those assets are removed from
the accounts and any gain or loss is credited or charged to income.
Depreciation of property and equipment is computed on the straight-line method
over estimated useful lives of three to thirty-nine years.  Property and
equipment consist of the following:
<TABLE>
<CAPTION>


                                  December 31,
                                 --------------
                                 2000      1999
                                 --------------
                                 (in thousands)

<S>                             <C>     <C>

Furniture and office equipment  $3,341   $2,549
Property                           840      840
Land                               118      118
Leasehold improvements             355      341
Construction in progress        28,675    3,688
                               -------   ------
                                33,329    7,536
Less-accumulated depreciation    2,055    1,094
                               -------   ------
                               $31,274   $6,442
                               =======   ======
</TABLE>


5.  NOTES RECEIVABLE FROM SALE OF COMMON STOCK:

     Notes receivable from the sale of common stock consists of notes receivable
from officers for the purchase of common stock in the Company.  During 2000,
notes totaling $100,000 and accrued interest were repaid. This payment was made
in the form of the Company's common stock, which was received by the Company and
later retired. The remaining notes bear interest at the rate of 6.10%, mature in
May 2004, and are secured by the pledge of the Company's common stock.

6.    NOTES RECEIVABLE:

     In February 2000, the Company sold its parking garage in Reno, Nevada to
Fitzgeralds Reno, Inc.  The sale price of $3 million was paid by $750,000 in
cash and the balance in the form of a promissory note in the principal amount of
$2,250,000 together with the assumption of the lease payments due under the
ground lease.  The note bears interest at the rate of 10% per annum and is
payable in monthly installments of principal and interest based on a 20 year
amortization, with the entire unpaid balance due in 10 years.  The note is
secured by a deed of trust covering the leasehold estate created by the ground
lease on which the garage is located, as well as the parking garage and an
assignment of leases.  In December 2000, Fitzgeralds Reno, Inc., a Nevada
corporation ("FRI") doing business as Fitzgeralds Hotel & Casino Reno, along
with several affiliates, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court, District of Nevada.  Fitzgeralds continues to make the monthly payments
due on the note and the ground lease and has informed the Company that it
intends to assume these obligations and continue making these payments until the
sale of the parking garage.  The Company's deed of trust contains a "due on
sale" provision until the note is paid.  After the note is paid, the Company's
deed of trust remains in effect to secure Fitzgeralds' performance of its
obligations under the ground lease and provides that any assignee of Fitzgeralds
in the event of the sale of the parking garage must meet certain net worth
requirements in order for Fitzgeralds to assign the ground lease.

7.     LONG-TERM DEBT:

     In August 2000, a wholly-owned subsidiary of the Company entered into a
loan agreement with the Commonwealth of Australia under which the Commonwealth
will make an unsecured, non-amortizing, interest-free loan to the Company in the
amount of AUD $40 million (approximately U.S. $22 million) with a 25-year
maturity. Loan proceeds are to be used to support the further development and
commercialization of GTL technologies in Australia.  Under the terms of the loan
agreement, the Company has agreed to conduct a feasibility study on constructing
a large-scale GTL fuels plant in Australia. Loan proceeds are to be made
available to the Company in three successive advances.  Pending satisfaction of
certain conditions relating to the financing, construction and completion of the
Sweetwater project, proceeds will be held in escrow.  Should the conditions not
be fully satisfied by August 2004, any loan proceeds remaining in escrow will be
returned to the Commonwealth.

During 2000, the Commonwealth made the first advance of AUD $12 million
(approximately U.S. $7 million) under the loan agreement.  The funds were placed

                                      F-10
<PAGE>

in the escrow and are being held in Australian currency.  Both the restricted
funds and the long-term debt have been adjusted to reflect the exchange rates in
effect as of the balance sheet date at the end of the third quarter.  The
long-term debt amount reflects cash loan proceeds received in escrow (AUD $12
million which is approximately U.S. $7 million) discounted over the remaining
term of the loan using an imputed interest rate of 9%.  The difference between
the cash received and the discounted long-term debt amount of $731,000 has been
recorded as a reduction in the cost of the related property, plant and
equipment. The long-term debt amount reflected for these proceeds will increase
over time as the remaining term of the loan declines.

8.     MINORITY INTERESTS:

     During 2000, the Company entered into a letter of intent with Ivanhoe
Energy, Inc. ("Ivanhoe") providing for Ivanhoe to participate in the Company's
Sweetwater project.  Ivanhoe is a Canadian oil and natural gas exploration and
development company.  Ivanhoe has funded $2 million for pre-construction
engineering and other project development costs and, upon execution of
definitive agreements, will acquire a 13% equity position in the project for an
additional $19 million.  Ivanhoe would have the right to receive cash flow from
distributions in excess of 13% if the Sweetwater project does not meet specified
performance targets.

     Also during 2000, the Company entered into a non-binding letter of intent
with a subsidiary of Enron Corp. ("Enron") with respect to its contemplated
contribution of $21 million in exchange for a 13% equity investment in the
Sweetwater project. Under the letter of intent, upon execution of definitive
agreements, Enron would receive a $1 million credit toward its investment in the
Sweetwater plant as a result of its prior contribution toward the development of
the project, resulting in net equity funding to be received from Enron of $20
million. Enron would have the right to receive cash flow distributions in excess
of 13% if the Sweetwater project does not meet specified performance targets.

     Upon Enron's funding of its net capital contribution, it would become
entitled to convert its interest in
the Sweetwater project into a maximum of 1,500,000 shares of the Company's
common stock during a period beginning one year after the date on which the
project completes successful performance testing and ending on the tenth
anniversary of execution of definitive agreements relating to the transaction
contemplated in the letter of intent. In addition, upon Enron's funding of its
net capital contribution, it would receive a warrant to acquire no more than
1,500,000 additional shares of the Company's common stock at an exercise price
equal to $21.00 per share.

     Consummation of the transaction contemplated by the letters of intent with
Ivanhoe and Enron requires the satisfaction of a number of conditions, some of
which are not within the Company's control, including Ivanhoe and Enron
management approvals, satisfactory completion of due diligence by Ivanhoe and
Enron, funding of commitments with respect to other debt and equity financing
and the negotiation and execution of definitive agreements. As a result, the
transactions contemplated by the letters of intent may not be realized or may
only be realized under terms and conditions that differ materially from those
contemplated by the letters of intent.

     The Company also received $2 million from Methanex Corporation towards the
cost of the engineering work being performed by a third party for the Sweetwater
project.  These funds were received pursuant to a letter of intent with Methanex
that provided for the contribution by Methanex of an additional $43 million in
exchange for an equity interest in the Sweetwater project, subject to the
execution of definitive agreements and the satisfaction of certain conditions.
Subsequently, Methanex informed the Company that it was terminating further
participation in the Sweetwater plant.  The $2 million contribution was recorded
as a reduction in engineering costs for the Sweetwater plant during the second
quarter of 2000.

9.  LICENSING ACTIVITY:

     In August 2000, the Company signed a non-exclusive license agreement with
the Commonwealth of Australia.  This license provides the Commonwealth the right
to utilize Syntroleum's proprietary gas-to-liquids technology to convert natural
gas to synthetic liquid hydrocarbons, which can be refined into ultra clean
fuels.  Under the license agreement, the Commonwealth has paid the Company a
license fee in the amount of AUD $30 million (approximately U.S. $17 million),
half of which is being held in escrow and will be distributed to the Company
upon satisfaction of certain conditions relating to the construction of the
Sweetwater project.  Should the conditions not be fully satisfied by August
2004, any license proceeds remaining in escrow will be returned to the
Commonwealth.

     In October 2000, the Company modified its existing volume license agreement

                                      F-11
<PAGE>

with Ivanhoe to a master license agreement.  The license agreement, as amended,
no longer contains limitations on the volume of synthetic hydrocarbons which may
be produced by Ivanhoe under the agreement and enables Ivanhoe to pursue an
unlimited number of gas-to-liquids projects around the world.

      Also during 2000, the Company recognized $2 million in license revenue
reflecting funds previously received by the Company as payment for an option
granted to a licensee to acquire the right to use the Syntroleum Process in
certain additional geographic areas not included in the original licensed
territory.  Revenue received upon the grant of this option was deferred until
the earlier of the licensee exercising the option or the expiration of the
option.   The option lapsed in April 2000, resulting in the recognition of the
related revenue.

10.  PUBLIC OFFERING:

     In July 2000, the Company completed the sale of 5,650,000 shares of common
stock (including 400,000 shares of common stock pursuant to the exercise of a
portion of the underwriter's over-allotment option) pursuant to a public
offering at a price to the public of $17.50 per share.  The Company received net
proceeds of approximately  $92 million after the underwriting discount and
offering expenses.

     The Company intends to use a substantial portion of the net proceeds from
the offering to fund a portion of the Sweetwater project construction costs.
The Company intends to use any remaining net proceeds to fund costs associated
with pilot plant facilities, the development of additional GTL plants, research
and development activities, the acquisition of complementary technologies,
working capital needs and other general corporate purposes.

11.  INCOME TAXES:

     The Company has federal income tax net operating loss (NOL) carry-forwards
of approximately $62 million at December 31, 2000.  In connection with the
Company's merger with SLH, the Company obtained NOLs of approximately $17.6
million and capital loss carry-forwards of approximately $4.6 million.  These
carry-forwards generally begin to expire in 2004.

     The Company recognizes the tax benefit of NOL carry-forwards as assets to
the extent that management concludes that the realization of the NOL
carry-forwards is "more likely than not." Realization of the future tax benefits
is dependent on the Company's ability to generate taxable income within the
carry-forward period.  The Company's management has concluded that, based solely
on the criteria of SFAS No. 109 "Accounting for Income Taxes" and the historical
results of the Company, a valuation allowance should be provided for the entire
balance of the net deferred tax asset.

     The Company has not recorded an income tax provision or benefit for the
years ended December 31, 2000, and 1999.  This differs from the amount of income
tax benefit that would result from applying the 34% statutory federal income tax
rate to the pretax loss due to the increase in the valuation allowance in each
period.  The valuation allowance increased by approximately $11,983,000,
$9,690,000 and $13,177,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.  Deferred taxes arise primarily from NOL carry-forwards and the
recognition of revenues and expenses in different periods for financial and tax
purposes.

     Deferred taxes consist of the following:

<TABLE>
<CAPTION>
                                                      December 31,
                                                   -----------------
                                                   2000         1999
                                                   -----------------
                                                     (in thousands)
Deferred tax assets:
<S>                                               <C>        <C>

NOL carry-forwards                                 $23,637    $19,304
Capital loss carry-forwards                          1,614      1,614
Research and development credit                      1,826        973
Deferred revenue                                     6,968      1,710
Other                                                4,633      3,463
                                                  --------    -------
                                                    38,678     27,064
Deferred tax liabilities:
Depreciation                                           (80)      (288)
Other                                                 (169)      (330)
                                                  --------    -------
Net deferred tax asset before valuation allowance   38,429     26,446
Valuation allowance                                (38,429)   (26,446)
                                                  --------    -------
Net deferred tax assets                            $    -     $     -
                                                  ========    =======
</TABLE>

                                      F-12
<PAGE>

     During 2000, the Company made Australian withholding tax payments in the
amount of $2,486,000 for Australian sourced income.  These taxes were withheld
by the Commonwealth of Australia upon the Commonwealth's payment of the initial
license fee under the license agreement and the Commonwealth's first advance
under the loan agreement.  Under the Australian tax treaty with the U.S., the
payor is required to withhold 10% on Australian sourced revenue and to remit it
to the Australian tax authorities.

12.  SUPPLEMENTAL CASH FLOW INFORMATION:

     During 1998, the Company's merger with SLH was accounted for as a non-cash
investing activity.   In conjunction with the merger with SLH, the following
assets were acquired and liabilities assumed (in thousands):

<TABLE>
<CAPTION>

<S>                         <C>
Cash                        $   713
Short-term investments       40,550
Real estate held for sale
     and under development    7,387
Other assets                  2,719
Liabilities assumed          (2,454)
                            --------
  Equity issued             $48,915
                            ========

</TABLE>


13.  COMMITMENTS:

     The Company has entered into various, non-cancelable operating leases for
office space, equipment, land and buildings that expire over the next several
years.  Rental expense was $866,000 in 2000, $1,246,000  in 1999 and $614,000 in
1998.  Total future minimum lease payments under these agreements as of December
31, 2000 are as follows:
                                 Year         Amount
                                --------------------
                                   (in thousands)
                                 2001          1,069
                                 2002            907
                                 2003            382
                                 2004            343
                                 2005            332
                            Thereafter         5,839

     The Company has entered into employment agreements which provide severance
benefits to several key employees.   Commitments under these agreements totaled
approximately $4,634,000 at December 31, 2000.

                                      F-13
<PAGE>


14.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The estimated fair values of the Company's financial instruments at
December 31 are summarized as follows:
<TABLE>
<CAPTION>


                                      2000                 1999
                            ----------------------  -------------------
                             Carrying   Estimated   Carrying  Estimated
                              Amount    Fair Value   Amount  Fair Value
                            ----------------------  -------------------
                                            (in thousands)

<S>                            <C>      <C>      <C>       <C>

Cash and cash equivalents      $83,150  $83,150   $20,316   $20,316
Short-term investments           3,347    3,347     3,565     3,565
Accounts receivable                572      572     1,193     1,193
Investments                        959      959     1,104     1,104
Restricted cash                 13,745   13,745       -         -
Notes receivable                 2,362    2,607       161       161
Notes receivable from sale of
common stock                       599      599       699       699

</TABLE>

     The fair value of the cash and cash equivalents, restricted cash,
short-term investments and accounts receivable approximates cost because of the
short-term maturity of these financial instruments.  The estimated fair value of
the notes receivable were calculated by discounting scheduled cash flows using
estimated market discount rates. The investments were acquired in the merger
and, at the time of the merger, were valued at market.  No significant changes
in the estimated fair value have occurred since the merger.

15.  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

     At December 31, 2000 and 1999, all marketable securities were classified as
held-to-maturity and trading securities.  Held-to-maturity investments were
carried at amortized cost and trading securities were carried at fair value.
During 2000 and 1999, no securities classified as held-to-maturity or trading
securities were transferred out of held-to-maturity or trading securities.
Investments consisted of the following at December 31(in thousands):

<TABLE>
<CAPTION>


                          AMORTIZED MARKET    AMOUNT ON      UNREALIZED     UNREALIZED
                            COST     VALUE   BALANCE SHEET  HOLDING GAINS  HOLDING LOSSES
                         ----------------------------------------------------------------
2000
<S>                        <C>       <C>       <C>         <C>                <C>
TRADING SECURITIES
Equity Securities             $663     $107      $107        $-               $556

HELD-TO-MATURITY
U.S. Government Securities  $3,240   $3,240    $3,240        $-               $-

1999
TRADING SECURITIES
Equity Securities             $663     $415      $415        $-               $248

HELD-TO-MATURITY
U.S. Government Securities $16,243  $16,243   $16,243        $-               $-

</TABLE>

16.  STOCK OPTIONS:

     The Company maintains stock option and incentive plans for employees and
directors and has reserved  4,644,122 shares of common stock for issuance under
the employee and director plans including one percent of the outstanding shares
of common stock of the Company as of January 1 of each year (269,938 as of
December 31, 2000) for the director plan.  Under the terms of the plans,
incentive stock options may be issued with an exercise price of not less than

                                      F-14
<PAGE>

100% of fair market value at the date of grant.  Options granted vest at a rate
determined by the Compensation Committee of the Company's Board of Directors and
are exercisable for varying periods, not to exceed ten years.  At December 31,
2000, 282,619 shares were available for granting future options.

     The  number  and  exercise  price  of stock options granted are as follows:
<TABLE>
<CAPTION>

                                   Shares     Weighted
                                    Under     Average Price
                                   Option     Per Share
                                   ---------  -------

<S>                                    <C>         <C>
OUTSTANDING AT DECEMBER 31, 1997     701,706   $6.95
SLH options from merger              974,400    3.19
Fractional share payout                  (19)   6.94
Granted at market price              445,430   16.70
Granted at price exceeding market     32,247   20.28
Expired                              (21,925)  10.42
                                   ----------  ------

OUTSTANDING AT DECEMBER 31, 1998   2,131,839    7.44
Granted at market price              736,351    6.89
Granted at price exceeding market     35,000    7.57
Exercised                           (101,694)   1.06
Expired                              (79,571)  10.48
                                   ----------  ------
OUTSTANDING AT DECEMBER 31, 1999   2,721,925    7.44

Granted at market price              908,955   16.26
Granted at price exceeding market     58,284   12.37
Exercised                           (506,331)   5.16
Expired                              (68,486)   9.59
                                   ---------- ------
OUTSTANDING AT DECEMBER 31, 2000    3,114,347 $10.43
                                   ========== ======

</TABLE>

The following is a summary of stock options outstanding as of December 31, 2000:


<TABLE>
<CAPTION>


                    Options Outstanding         Options Exercisable
---------------------------------------------   -------------------------
                                         Weighted                Weighted
                               Weighted  Average                Average
    Range of         Options   Average  Remaining    Options    Exercise
Exercise Price     Outstanding Exercise Contractual  Exercisable   Price
                                Price     Life                  Per Share
-------------------------------------------------------------------------
<S>   <C>  <C>       <C>        <C>       <C>       <C>         <C>

3.19   -     $3.19    682,850    3.19      2.60       682,850      3.19
5.75   -     $6.88    714,904    6.66      7.87       311,171      6.37
7.25   -    $15.44    597,604   10.74      7.24       402,036     10.60
15.75  -    $16.38    612,899   16.36      9.75        12,899     15.75
16.75  -    $20.29    506,090   17.97      7.83       180,171     18.54
                     ---------  ------             ----------    -----
                    3,114,347  $10.43               1,589,127     $7.53
                    ---------  ------              ----------     -----
</TABLE>

     The Company applies the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."  Accordingly, no compensation cost
has been recognized for the stock option plans.  However, pursuant to the
requirements of SFAS No. 123, the following disclosures are presented to reflect
the Company's pro forma net income (loss) for the three years ended December 31,
2000 as if the fair value method of accounting prescribed by SFAS No. 123 had
been used.  Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and income (loss) per share would have increased to the pro forma
amounts indicated below:

                                      F-15
<PAGE>


<TABLE>
<CAPTION>
                                     December 31,
                           --------------------------------
                           2000          1999          1998
                           --------------------------------
                        (in thousands, except per share data)

NET INCOME (LOSS):
<S>                       <C>        <C>        <C>

As reported               $(25,168)  $(17,158)    $(11,711)
Pro forma                 $(28,610)  $(19,632)    $(14,175)
BASIC AND DILUTED INCOME
(LOSS) PER SHARE:
As reported                $(0.84)    $(0.64)      $(0.46)
Pro forma                  $(0.95)    $(0.73)      $(0.56)
</TABLE>




     Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

     The weighted average per share fair value at date of grant for options
granted during 2000, 1999 and 1998 was $12.32, $5.82 and $10.60 per share,
respectively.  Prior to the Company's merger with SLH on August 7, 1998, the
Company was a privately held corporation and used the minimum value method with
the following assumptions during 1997:  dividend yield of 0%, risk-free interest
rate of 5.60% to 6.83%, and expected lives of 5 to 10 years. During 1997 and
prior to the merger in 1998, volatility was assumed to be 0%.  The fair values
of options granted since the merger have been estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:

                                          2000          1999       1998
                                          --------------------------------
              Expected dividend yield       0%            0%         0%
              Expected volatility          98%           83%       124%
              Risk-free interest rate     5.78%         5.07%      5.47%
              Expected life               5 yrs.       9.77 yrs.  9.66 yrs.

     Subsequent to December 31, 2000, the Company granted 225,413 options to
purchase shares of common stock to employees at an average exercise price of
$14.88 and the Company amended the employee stock option plan to reserve
5,000,000 shares for issuance under the plan.


17.     SIGNIFICANT CUSTOMERS:

     Substantially all of the Company's joint development revenue for the three
years ended December 31, 2000 was from several major oil companies for joint
development work conducted in the Company's research and development facilities
and at the pilot plant located at ARCO's Cherry Point Refinery in Cherry Point,
Washington and in connection with the conduct of several feasibility studies.
The testing in the laboratories under these agreements was completed in
September 2000.   In addition, the Company has signed master license agreements
with four oil companies and with the Commonwealth of Australia since 1996.  The
Company has also signed volume license agreements with three other oil
companies. The license agreements allow the licensees to use the Syntroleum
Process in their production of synthetic crude oil and fuels primarily outside
of North America.  Syntroleum received an aggregate of $36 million and rights to
certain technologies in connection with these license agreements.  The Company
also received from a licensee a separate nonrefundable payment of $2 million for
options to add certain geographic areas not covered by the applicable license
agreement.  The amounts received under license agreements have been recorded as
deferred revenue at December 31, 2000 and 1999.  During 2000, the Company
recognized $2 million in license revenue reflecting funds previously received by
the Company as payment for an option granted to a licensee to acquire the right
to use the Syntroleum Process in certain additional geographic areas not
included in the original licensed territory.  The option lapsed in April 2000,
resulting in the recognition of previously deferred revenue.

     Under these license agreements, a licensee obtains the right to use the
Syntroleum Process and to acquire catalysts from the Company, secures pricing
terms for future site licenses and obtains rights to future improvements to the
Syntroleum Process.  Generally, the amount of the license fee for site licenses
issued under the Company's master and volume license agreements is determined
pursuant to a formula based on the discounted present value of the product of
(i) the annual maximum design capacity of the plant,  (ii) an assumed life of

                                      F-16
<PAGE>

the plant, and (iii) the Company's per barrel rate.  Initial cash deposits under
the Company's license agreement are credited against future site license fees
(See Note 1).

     The Company is pursuing development of a commercial specialty products
plant to be located in Western Australia using the Syntroleum Process.  In
addition, the Company conducts a portion of its research and development
activities through joint development agreements with licensees and other
industry partners.  The terms of these agreements vary, but generally provide
cost sharing arrangements.

18.  STOCKHOLDER RIGHTS PLAN:

     Each outstanding share of the Company's common stock carries a stock
purchase right issued pursuant to a dividend distribution declared by the
Company's Board of Directors in March 1997.  The rights entitle the holder to
buy one-sixth of one one-hundredth of a share of junior preferred stock at a
price of $125 per one one-hundredth of a share.  Generally, the rights become
exercisable ten days after a public announcement that a person or group has
acquired, or a tender offer is made for 25% or more of the common stock of the
Company.  If either of these events occur, each right will entitle the holder
(other than a holder owning more than 25% of the outstanding stock) to buy the
number of shares of the Company's common stock having a market value two times
the exercise price.  The exercise price is $125.  The rights may be redeemed by
the Company for $.01 per right until a person or group has acquired 25% of the
Company's stock.  The rights expire January 2007.

                                      F-17
<PAGE>